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This  -hnnk  is  DUE  on  the  last  date  stamped  below 


SOUTHERN  BRANCH, 

yNIVERSlTY  OF  CALtFOf^NU 

LIBRARY, 

COS  AMGCLES.  <5*U«^. 


61ST  CONGRESS  :  :  2d  SESSION 

1909-1910 


SENATE  DOCUMENTS 


Vol.  7 


WASHINGTON  ;  :  GOVERNMENT  PRINTING  OFFICE  :  :  1910 


4  -i-^xj?"i: 


'^?/SSf1  '-^NATE  {Doc-f3- 


NATIONAL   MONETARY  COMMISSION 


The  History  of  Banking 
in  Canada 


BY 

ROELIFF  MORTON  BRECKENRIDGE 


Presented  by  Mr.  Burrows 
January  28, 1910. — Ordered  to  be  printed 


Washington  :  Government  Printing  Office  :  1910 


-i* 


374  ^/\ 


TABLE   OF   CONTENTS. 


I.  The  earliest  banks:                                                      '  Page. 

Canada  Banking  Company 3 

Montreal  Bank 4 

Bank  projects 5 

Efforts  in  Lower  Canada 6 

Upper  Canadian  legislation 6 

Influence  of  American  models  on  early  charters • 7 

First  charter  of  the  Bank  of  Montreal 9 

Quebec  Bank  and  Bank  of  Canada 13 

Bank  of  Upper  Canada  charter 14 

Few  safeguards  in  early  charters 15 

Conditions  restrict  expansion 16 

Lack  of  uniform  currency 18 

Checks  upon  issue 19 

IL   Bank  expansion  and  regulation,  1825-1841: 

Improvement  in  Upper  Canada 22 

Commercial  Bank  of  the  Midland  District  chartered 23 

Imperial  regulation  of  bank  charters 23 

Conditions  imposed  by  Downing  street 25 

Upper  Canadians  resent  interference 26 

City  Bank  founded  in  Montreal 27 

Obstacles  to  further  incorporations  in  Lower  Canada 29 

Suspension  of  specie  payments  (1837) 30 

Fraudulent  private  banks 31 

Capital  increases  in  Upper  Canada 32 

Introduction  of  shareholders'  double  liability 33 

Upper  Canadian  agitation  for  more  banks 34 

Imperial  intervention 35 

Establishment  of  joint  stock  (private)  banks 36 

Bank  of  British  North  America  founded 37 

Cash  credits 38 

Suspension  in  Upper  Canada  authorized 39 

Effect  of  the  crisis  of  1837 40 

III.    1841-1866: 

Union  of  the  Canadas 42 

Bank  statistics  at  union 43 

Bank  of  issue  proposed  by  Lord  Sydenham 43 

Assembly  rejects  the  plan 45 

Tax  imposed  on  circulation 46 

A  banking  policy  determined 47 

Bank  regulations  prescribed  by  the  colonial  office 47 


in 


Table        of        Contents 

III.    1841-1866 — Continued.  Page. 

Renewal  of  bank  charters  and  stock  increases 50-5 1 

Dollar  notes  retained , 52 

Economic  expansion  of  the  latter  forties 54 

Banque  du  Peuple  chartered 54 

Crisis  of  1847 55 

Blame  cast  upon  the  banks 56 

The  act  to  establish  freedom  of  banking 58 

Amendments  and  concessions  to  chartered  banks ,  _ .  60 

Failure  of  the  free  banking  plan 62 

Stocks  of  chartered  banks  increased 64 

Additional  charter  restrictions  imposed 65 

Speculative  inflation 66 

Collapse  of  1857 67 

Bank  losses 68 

New  charters  granted 69 

Bank  inquiry  of  1859 70 

International  and  Colonial  Banks  fail 71 

Government  issues  proposed  by  A.  T.  Gait 72 

The  plan  defeated 74 

Treasury  needs  of  1866 75 

Provincial  note  issue  authorized 75-76 

Operation  of  the  provincial  note  act 77-78 

Bank  of  Upper  Canada  fails 79 

Also  the  Commercial  Bank  of  Canada 82 

Growth  of  Canadian  banks,  1 841 -1867 84-85 

Their  development  of  function 86-88 

IV.  The  first  bank  act  of  the  Dominion: 

Changes  wrought  by  the  British  North  America  act 89 

Preliminary  Dominion  legislation 90 

Legislative  inquiries  into  the  banking  system . 91-94 

Proposal  of  John  Rose  and  E.  H.  King  to  copy  in  Canada 

the  national-bank  act  of  the  United  States 94-96 

Opposition  to  the  project  through  the  country  and  in 

Parliament 97-98 

The  plan  abandoned 98 

The  policy  of  Sir  Francis  Hincks 99 

The  first  Dominion  bank  act 100-103 

Fixed  reserve  and  note  holders'  priority  rejected 104 

Expansion  of  the  government  note  circulation  and  new- 
regulation  of  its  issue 105 

Subsequent  legislation  concerning  Dominion  notes 106 

Dominion  takes  over  the  postal  and  government  savings 

banks -• 107 

The  general  banking  measure  of  187 1 . 108 


Table        of        Contents 

V.  Legislation  and  development,  1867-1890:  Page. 

Bank  expansion,  1867- 1890 no 

Prosperity  of  the  early  seventies ni 

Multiplication  of  new  banks 112 

Increase  of  banking  capital 113 

Depression  following  the  crisis  of  1873 114 

Bank  losses 115 

Mechanics'  Bank  fails 116 

Bank  of  Liverpool 117 

First  decennial  revision  of  the  bank  act  (1880) 118 

Concession  to  the  national-currency  advocates 119 

Criticism  of  issue  regulations 119 

Bond  security  and  government  inspection  advocated 120 

Minister  proposes  to  make  notes  a  prior  lien 121 

Parliament  approves 121 

Privilege  of  issue  under  $5  withdrawn  from  the  banks.  _  122 

Fuller  returns  to  the  government  required 122 

Money  penalties  provided  for  certain  infractions  of  the 

bank  act 123 

New  charters  granted,  1882-1886 124 

Banks'  business  increases 125 

Exchange  Bank  fails 126 

Maritime  Bank  fails 127 

Bank  of  London  and  Central  Bank 128 

Liquidation  of  Federal  Bank 129 

VL   Bank  act  revision  of  1890: 

Defects  in  the  immediate  convertibility  of  Canadian  bank 

notes 131 

Discount  upon  notes  of  distant  banks 132 

Increase  of  small  banks 132 

Banks  establish  redemption  agencies 133 

Bankers  and  minister  of  finance  meet 1 33-1 34 

Arguments  against  a  fixed  reserve 1 34-1 35 

Compulsory  audit  and  appropriation  of  unpaid  balances 

defeated 136 

Establishment  of  a  safety  fund  to  secure  note  circula- 
tion     137-139 

Note  redemption  at  provincial  commercial  centers  made 

mandatory 140 

Dilatory  creditors  of  liquidated  banks  protected 140-141 

Minimum  capital  requirement  increased 141 

Loans  upon  warehouse  receipts  and  the  like 141-144 

Further  amendments 144-146 

Emergency  circulation  privileges  accorded 147 


a 


hie         of         Contents 


VII.  Amendments  of  1900:  Page. 

Effort  to  complete  joint  guaranty  of  the  issue  by  joint 

control 148 

Incorporation  of  the  Canadian  Bankers'  Association 148 

Powers  conferred  by  the  charter 149 

Jurisdiction  over  suspended  banks 150 

Supervision  of  the  note  circulation 151 

Provisions  respecting  bank  mergers 152 

Minor  amendments  of  the  bank  act -, 153- 154 

Bankers'  Association  requires  returns  of  circulation 154 

Duties  of  curators  of  failed  banks  prescribed —  155 

Range  of  the  association's  further  activities 156-157 

Growth  of  Canadian  banks' business,  1888-1908 158-159 

Eflfect  of  competition  on  banking  profits  and  the  increase 

of  branches 159-16 1 

Branches  by  Provinces  at  five-year  intervals 162 

Clearing  houses  organized 162 

New  charters,  1901-1908 163 

New  capital  called  up 164 

Bank  mergers 165 

Bank  failures 166 

Commercial  Bank  of  Manitoba 166 

Banque  du  Peuple 167 

Banque  Ville  Marie  and  Banque  de  St.  Jean 168 

Bank  of  Yarmouth,  Banque  de  St.  Hyacinthe 169 

Liquidation  of  the  Ontario  Bank , 170 

Liquidation  of  the  Sovereign  Bank . 172-174 

APPENDICES. 

I.  The  first  Dominion  bank  act 175 

II.  The  consolidated  Canadian  bank  act 2 10 

III.  Amending  legislation  of  1908 283 

IV.  Table  showing  the  grand  totals  of  the  assets  and  liabilities  of 

the  chartered  banks  of  Canada,  as  reported  to  the  Govern- 
ment on  December  31,  1867-1908 287-288 

V.  Canadian  bank  statistics,  1 889-1 908,  as  of  December  31,  1889- 

1908 289 

VI.  Table  showing  the  total  circulation,  by  months,   1868-1908, 

inclusive,  of  the  chartered  banks  of  the  Dominion  of  Canada.  290 

VII.  By-laws  of  the  Canadian  Bankers'  Association 291 

VIII.  Table  showing,  by  years,  the  clearings  in  the  clearing  houses 

of  divers  Canadian  cities,  1 890-1 908 309 

IX.  Number  of  branches  of  Canadian  banks  on.  December  31, 

1889-1908 310 


THE   HISTORY  OF  BANKING  IN 
CANADA." 

I. — The  Baruest  Banks. 

Efforts  to  introduce  the  practice  of  banking  into  the 
British  North  American  provinces  were  put  forth  as  early 
as  1792.  The  "Canada  Banking  Company,"  then  organ- 
ized by  certain  Enghsh  firms  and  Montreal  merchants, 
was  not  destined  long  to  survive  its  origin,  although  one 
at  least  of  its  5 -shilling  notes  which  has  been  preserved 
(No.  6803)  is  proof  that  it  exercised  the  function  of  issue. 
It  seems  to  have  left  little  trace,  either  in  men's  memo- 
ries or  in  the  records  of  the  time. 

Twenty-five  years  had  passed  before  the  next  consider- 
able project  of  a  bank  of  issue,  discount,  and  deposit  was 

o  Authorities  and  Sources:  By  far  the  most  accurate,  painstaking,  and 
thorough  discussion  of  the  development  here  to  be  reviewed  is  in  the  series 
of  chapters  contributed  by  Professor  Adam  Shortt,  sometime  of  Queen's 
University,  Kingston,  Ontario,  to  the  Journal  of  tJie  Canadian  Bankers' 
Association,  Toronto  (later  Montreal),  1896-1905.  Cited  more  particu- 
larly, these  are: 

"The  Early  History  of  Canadian  Banking,"  Vol.  IV,  1896-1897,  Nos. 
I,  2,  3,  and  4;  Vol.  V,  1897,  No.  i. 

"Canadian  Currency  and  Exchange  under  French  Rule,"  Vol.  V,  1898, 
Nos.  3  and  4;  Vol.  VI,  1898-1899,  Nos.  i,  2,  and  3. 

"The  History  of  Canadian  Currency,  Banking,  and  Exchange,"  Vol.  VII, 
1900,  Nos.  3  and  4;  Vol.  VIII,  1900-1901,  Nos.  i,  2,  3,  and  4;  Vol.  IX, 
1901-1902,  Nos.  I,  2,  3,  and  4;  Vol.  X,  1902-1903,  Nos.  i,  2,  3,  and  4; 
Vol.  XI,  1903-1904,  Nos.  I,  2,  3,  and  4;  Vol.  XII,  1904-1905,  Nos.  i,  3, 
and  4;  Vol.  XIII,  1905-1906,  Nos.  i,  2,  3,  and  4;  Vol.  XIV,  1906,  No.  i. 

A  preliminary  survey  of  the  more  accessible  material  vras  undertaken 
by  the  present  writer  in   "The  Canadian  Banking  System,    1817-1890," 

3 


National    M on  et ary     Commission 

brought  to  the  point  of  opening  for  business.  This  was 
in  the  province  of  Lower  Canada  and  in  the  city  of  Mont- 
real. For  lack  of  legislation  giving  them  corporate 
powers,  the  promoters  of  the  bank  began  their  work  under 
articles  of  association,  and  so  worked  imtil  a  provincial 
charter  was  obtained  in  1822.  The  initial  paid-in  capital 
of  the  first  bank  was  £25,000  currency,  or  about  $100,000. 
Like  action  to  that  of  the  Montreal  Bank — the  name  of 
the  new  organization — was  taken  in  Quebec  by  those  who 
formed  the  Quebec  Bank  the  following  year,  and  by  an- 
other group  of  Montreal  proprietors,  a  number  of  them 
Americans  or  persons  interested  in  the  American  trade, 
under  the  style  of  the  Bank  of  Canada. 

published  in  the  Journal  of  the  Canadian  Bankers'  Associatiofi,  Vol.  II, 
Toronto,  1894— 1895,  and  in  the  Publications  of  tfie  American  Economic  Asso- 
ciation,Yo\.  X,  Nos.  i,  2,  and  3,  New  York,  1895.  A  detailed  bibliography 
was  ^printed  as  an  appendix  to  that  dissertation. 

Illuminating  discussion  of  the  recent  history  of  the  Canadian  system  is 
available  in  the  pages  of  the  Journal  of  the  Canadian  Bankers'  Association, 
published  quarterly  since  1893.  A  good  part  of  the  work  by  George 
Hague,  "  Banking  and  Commerce,"  New  York,  1908,  is  concerned  with 
episodes  of  the  Canadian  history  or  illustrates  the  organization  and  operation 
of  the  Canadian  banks.  The  administrative  technique — the  internal  regu- 
lation— of  these  corporations  is  well  described  by  H.  M.  P.  Eckhardt  in 
his  "Manual  of  Canadian  Banking,"  Toronto,  1909.  For  the  Canadian 
bank  act  in  the  light  of  judicial  interpretation  there  is  nothing  better  than 
the  copious  and  learned  annotation  of  Justice  J.  J.  MacLaren,  "  Banks 
and  Banking,"  Toronto,  1908.  As  introduction  to  this  work  there  has 
been  printed  one  of  the  admirable  addresses  of  Dr.  Byron  E.  Walker,  who, 
with  George  Hague  and  James  B.  Forgan,  has  done  much  toward  acquaint- 
ing American  bankers  of  the  peculiarities  and  advantages  of  the  Canadian 
system. 

The  present  paper  is  based  upon  the  session  laws  and  legislative  docu- 
ments of  the  several  provinces,  and  of  the  Dominion,  the  parliamentary 
debates,  where  reports  were  accessible,  contemporary  newspapers,  memoirs, 
and  pamphlets,  and  in  respect  of  recent  history,  upon  the  oral  accounts  of 
many  who  had  knowledge  of  the  events  detailed.  Grateful  acknowledgment 
is  owing,  as  well  for'  this  last  assistance,  as  to  the  researches  of  Professor 
Shortt  into  dilT:cuIt  phases  of  the  earlier  liistor^-. 


History    of    Banking    in     Canada 

The  successful  operation  of  the  Bank  of  the  United 
States  in  the  country  to  the  south,  the  scant  supply  of 
currency  in  the  colonies  and  the  variety,  in  point  both  of 
origin  and  of  condition,  of  such  coin  as  was  in  circulation, 
the  nuisance  of  promissory  notes  and  merchants'  hons, 
issued  or  used  without  lawful  authority  in  substitution 
for  coin,  and  a  lack  of  adequate  capital  to  handle  the 
colonies'  trade,  to  develop  their  farms,  fisheries,  and  forests, 
or  to  expand  their  exports,  had  all  prompted  much  dis- 
cussion of  banks  some  years  before  any  was  actually 
begun.  It  is  of  record  that  even  in  1767  the  authorities 
of  Lower  Canada  were  asked  to  grant  a  monopoly  of  the 
issue  of  bons  or  due-bills.  Fifty  thousand  pounds  were 
subscribed  in  1801  toward  a  projected  bank  in  Halifax, 
the  plan  failing  because  those  interested  sought  monopoly 
privileges  from  the  legislature.  In  1807,  Montreal  and 
Quebec  merchants  joined  in  petitioning  their  legislature 
for  a  bank  charter,  and  in  the  session  of  the  assembly  the 
following  year  a  bill  to  incorporate  divers  persons  as  the 
Bank  of  Canada  reached  the  stage  of  printing.  At  Kings- 
ton, Upper  Canada,  a  similar  movement  was  begun  in 
1 8 10,  but  the  effort  failed.  So  also  one  of  like  nature 
started  in  Halifax  in  1 8 1 1 . 

The  first  bank  of  the  upper  province  did  not  begin 
business  until  1819;  the  first  bank  of  Nova  Scotia  in  1825. 
In  Kingston  (Upper  Canada)  as  in  Montreal,  the  pro- 
moters, failing  of  incorporation,  organized  under  articles 
of  association,  the  articles  being  substantially  the  same 
as  those  adopted  by  the  lower  province  banks.  The  Hali- 
fax institution  was  a  private  partnership.     Bills  to  incor- 


National     M  o  n  et  ar  y     Commission 

porate  banks  failed  in  the  Nova  Scotia  legislature  in 
1822,  as  well  as  in  1825. 

So  far  as  the  records  show,  the  first  of  any  British  North 
American  charter  granting  incorporation  to  a  banking 
company  which  not  only  was  passed  and  approved,  but 
was  also  actually  used  by  the  beneficiaries,  was  the  New 
Brunswick  act  of  1820  incorporating  the  president,  direct- 
ors, and  company  of  the  Bank  of  New  Brunswick,  with  its 
principal  office  at  St.  John.  For  one  reason  or  another, 
mostly  reasons  of  domestic  or  colonial  politics,  action  in 
this  direction  proposed  to  the  legislature  of  Lower  Canada 
in  1815,  1816,  1817,  1818,  and  1819,  either  failed  of  passing 
or,  passing,  failed  of  the  royal  assent,  without  which  no 
legislation  of  these  colonies  had  force.  The  bills  which 
finally  incorporated  the  first  three  banks  of  Lower  Can- 
ada were  passed  by  the  legislature  in  1821  and  came 
into  force  by  proclamation  the  following  year.  In  the 
upper  province  a  bill  to  incorporate  a  "Bank  of  Upper 
Canada"  was  passed  in  the  session  of  181 7,  but  the  royal 
assent  was  first  proclaimed  in  1819  after  the  time  limit 
within  which  the  bank  was  to  begin  business  had  expired. 

The  legislature  proceeded  then  to  pass  two  charters,  the 
one  for  the  Bank  of  Kingston,  and  the  other  for  the  Bank 
of  Upper  Canada.  The  second  measure,  being  in  the 
interest  of  the  historical  family  compact,  the  dominant 
political  faction,  contained  a  provision  for  a  stock  sub- 
scription on  behalf  of  the  provincial  government  and  was 
reserved,  though  the  royal  assent  was  eventually  pro- 
claimed in  1 82 1.  The  Kingston  charter  was  forthwith 
approved  by  the  lieutenant-governor,  acting  for  the 
Crown,  but  those  interested  in  it,  many  of  them  being 


History     of    Banking    in     Canada 

also  shareholders  in  the  private  bank  already  established 
failed  to  raise  the  capital  of  £20,000  required  before  be- 
ginning business,  and  thus  forfeited  their  rights  by  non- 
user  until  January  i,  1821. 

If  ever  they  were  published,  the  precise  terms  of  the 
earliest  Nova  Scotian  organization  are  not  now  accessi- 
ble. But  the  articles  of  the  Quebec  Bank,  of  the  Bank 
of  Canada,  and  of  the  private  (afterwards  called  the 
"pretended")  Bank  of  Upper  Canada,  at  Kingston,  ap- 
peared in  the  newspapers  of  the  day,  as  did  also  the 
document  from  which  they  were  apparently  copied,  the 
articles  of  the  Bank  of  Montreal.  Through  the  inge- 
nuity and  research  of  the  leading  authority  upon  the 
early  history  of  Canadian  banking  there  has  been  found, 
moreover,  a  copy  of  the  master  document  of  this  phase 
of  Canadian  banking  history — the  bill,  that  is,  intro- 
duced into  the  legislature  of  Lower  Canada  in  1808. 
The  first  charters,  of  course,  are  all  available  in  the 
session  laws  of  the  various  provinces. 

A  comparison  of  the  bill  of  1808  to  the  charter  of  the 
first  bank  of  the  United  States  has  shown  beyond  all 
doubt  that  the  essential  features  of  their  proposed  bank 
charter  were  framed  by  the  Canadians  quite  in  the 
spirit,  and  for  long  and  significant  passages,  exactly  in 
the  letter  of  Alexander  Hamilton's  provisions  for  a 
national  bank.  In  the  Canadian  project,  for  example, 
there  was  an  arrangement  for  a  government  subscription, 
the  appointment  of  government  directors,  and  the  pay- 
ment of  the  government  subscription  by  government 
debt;  for  shareholders  voting  by  a  scale  designed  to 
minimize  the  influence  of  large  holdings;  for  excluding 


National    AI  on  et  ary     C  ommis  s  io 


n 


aliens  from  the  directorate;  for  limiting  the  holdings  of 
real  property;  for  restriction  of  the  total  debts  of  the 
corporation  to  a  prescribed  proportion  of  its  capital;  for 
the  payment  of  half  yearly  dividends,  if  earned,  and  for 
the  establishment  of  offices  of  discomit  and  deposit  at 
places  other  than  the  domicile  of  the  bank.  While  there 
are  abundant  changes  and  additions  in  the  Montreal  bill, 
the  language  of  the  American  act  is  followed  so  literally, 
even  through  whole  sections,  as  to  preclude  any  other 
explanation  than  that  the  southern  measure,  proven 
successful  and  advantageous  *  in  operation,  served  as 
model  for  the  draftsmen  of  the  north.  The  principal 
interests  concerned  in  the  project  of  1808  were  much  the 
same  as  those  which  finally  brought  about  the  organiza- 
tion of  the  Montreal  Bank. 

When  the  legislature  was  induced  to  pass  charters, 
some  ten  or  twelve  years  after  the  plan  of  1808  failed, 
the  feature  of  government  participation  was  omitted 
from  the  Lower  Canada  charters.  But  in  the  upper 
province,  as  has  been  seen,  the  earlier  suggestion  was 
adopted  by  the  members  of  the  family  compact.  It  was 
provided  that  in  the  bank  at  York  (Toronto)  for  which 
they  got  a  charter  the  provincial  government  should 
take  one-eighth  of  the  whole  capital  stock.  Through  a 
subsequent  reduction  of  the  authorized  capital  the  gov- 
ernment share  became  a  fourth.  In  other  essentials  the 
articles  of  181 7  and  1818  and  the  acts  of  1819  to  1822 
all  show  marked  similarity  to  the  bill  of  1808.  The 
changes  from  this  model  are  to  be  found,  for  the  most 
part,   merely  in  the  phraseology  or  in  the  stipulations 


History    of    Banking    in     Canada 

concerning  the  capital  stock  and  the  par  value  of  the 
shares  into  which  it  was  to  be  divided. 

The  charter  of  the  Bank  of  Montreal,  for  example, 
recited  the  formation  of  an  association  some  years  earlier 
and  the  desire  of  the  shareholders  for  incorporation  under 
provisions  corresponding  as  nearly  as  might  be  with  the 
terms  of  their  original  association.  The  legislature  there- 
fore formed  the  144  shareholders  into  a  body  corporate 
and  politic,  with  corporate  powers  continuing  to  June  i, 
1 83 1.  The  capital  was  fixed  at  £250,000  currency,"  all 
to  be  paid  up  in  annual  installments  of  not  more  than 
10  per  cent  within  nine  years  from  the  passing  of  the 
act.  There  were  to  be  13  directors,  only  natural-born 
or  naturalized  British  subjects  or  residents  of  Montreal 
for  three,  or  of  the  province  for  seven,  years,  and  holders 
of  at  least  10  shares  being  eligible  to  the  office.  Direc- 
tors were  forbidden  to  act  as  private  bankers  during 
their  term  of  office  or  to  receive  any  salary  except  such 
as  might  be  voted  by  the  shareholders  in  general  meeting. 
They  were  authorized  to  appoint  the  officers  of  the  bank 
and  to  require  proper  bonds.  They  were  required  to 
declare  half  yearly  dividends  out  of  the  funds  of  the 
bank,  but  never  so  as  to  lessen  or  to  impair  their  capital; 
to  keep  a  register  of  stock  transfers  and  to  present  to 
the  annual  meetings  of  shareholders  statements  of  the 
debts  due  to  and  from  the  bank,  amount  of  bank  notes 


"Halifax  currency,  i2d.  =  is.;  20S.=£i;  £i  (approximately)  =$4. 
Through  long  periods  the  British  pound  sterling  was  conventionally 
equal  to  £1  4s.  4d.  Halifax  currency.  There  were  no  coins  exactly  cor- 
responding to  this  arbitrary  money  of  account,  which  was  used  in  Canada 
down  to  1858,  but  the  Spanish  and  American  dollars  generally  passed  for 
5s.  or  a  trifle  more. 


National     Monetary     Commission 

in  circulation,  amount  of  probably  bad  or  doubtful  debts, 
and  the  surplus  or  profits,  if  any,  remaining  after  deduc- 
tion of  losses  and  provision  for  dividends.  Should  the 
debts  of  the  corporation,  whether  by  bond,  bill,  or  note, 
exceed  thrice  the  amount  of  its  capital  stock,  over  and 
above  a  sum  equal  to  such  money  as  might  be  deposited 
with  the  bank  for  safe-keeping,  the  directors  were  to  be 
liable  in  their  natural  capacities — severally  and  jointly, 
that  is — for  the  excess,  not  only  to  the  creditors,  but  to 
the  shareholders  as  well.  As  escape  from  this  Hability, 
directors  in  opposition  might  publish  their  protest  within 
eight  days  of  the  time  the  illegal  enhancement  of  indebt- 
edness occurred.  The  Bank  of  Montreal  and  the  Bank 
of  Canada  shares  were  rather  larger  than  others  of  the 
time,  being  fixed  at  £50  each.  The  Quebec  Bank's 
shares  were  for  £25  each  and  those  of  the  Bank  of  Upper 
Canada  were  for  £12  los.  each. 

Shareholders  were  accorded  votes  in  the  meetings  of 
the  company  in  such  a  proportion  that,  while  the  holder 
of  I  to  2  shares  had  i  vote,  the  holder  of  100  shares 
could  have  but  20  votes,  no  matter  how  many  shares  he 
held.''  After  the  first  election  of  directors  no  share  was  to 
carry  a  right  to  vote  unless  held  for  three  months  prior  to 
a  meeting.     Transfers  of  stock  were  effective  only  when 

a  Precisely,  the  scale  was  this:  Vote. 

For  holders  of  i  to  2  shares i 

For  each  2  over  2  shares i 

For  each  4  over  10  shares i 

For  each  6  over  30  shares i 

For  each  8  over  60  shares i 

The  holder  of  10  shares  would  thus  have  5  votes;  of  30,  10  votes;  of  60, 
15  votes;  and  of  100,  20  votes,  as  in  the  first  Bank  of  the  United  States. 
In  the  Montreal  charter,  however,  no  holder  was  permitted  more  than  20 
votes. 

10 


History    of    Banking    in     Canada 

registered  at  the  bank,  and  even  then  not  until  the  trans- 
feror should  have  discharged  any  debts  then  due  from 
him  to  the  bank  in  excess  of  the  value  of  his  remaining 
shares. 

Shares  were  made  personal  property  and  liable  to 
seizure  in  behalf  of  bona  fide  creditors  other  than  the  bank 
for  debt,  it  being  provided  that  attachments  should  be 
served  on  the  cashier  of  the  bank.  Shareholders  failing 
to  pay  calls  were  penalized  5  per  cent  upon  the  amount  of 
their  stock.  On  the  other  hand,  they  acquired  the  privi- 
lege of  a  liability  limited  to  the  amount  of  their  subscrip- 
tions in  the  provision,  "no  shareholder  shall  be  answer- 
able in  his  private  or  natural  capacity  for  the  debts  of  the 
said  corporation. "  Fifty  shareholders,  owning  1 50  shares, 
might  call  an  extraordinary  meeting  of  the  proprietary. 

The  bank  thus  created  was  empowered  to  sue  and  to  be 
sued  in  the  corporate  name  of  the  company;  to  issue 
promissory  notes  intended  for  circulation  and  payable 
on  demand  in  specie  current  by  the  laws  of  the  province; 
to  deal  in  bills  of  exchange  and  in  coin  and  bullion;  to 
discount  notes  of  hand  and  promissory  notes  and  to  receive 
the  discount  at  the  time  of  negotiating ;  to  sell  stock  (goods) 
pledged  for  money  lent  and  not  redeemed,  and,  finally,  by 
implication,  at  all  events,  to  receive  deposits.  Practically 
all  other  forms  of  activity  were  forbidden.  Even  the 
power  to  take  and  to  hold  mortgages,  hypotheques,  or 
real  property  by  way  of  additional  security  for  debt  con- 
tracted to  the  bank  in  the  course  of  its  dealings  was 
coupled,  wisely  enough,  to  be  sure,  to  a  prohibition  against 
lending  upon  any  account,  upon  m.ortgage,  hypotheque 
or  upon  land  or  other  fixed  property.     The  corporatiorf 


National     M  o  n  e  t  ar  y     Commission 

was  forbidden,  on  pain  of  forfeiture  of  its  charter,  to  lend 
money  to  a  foreign  state.  It  might  not  raise  loans  of 
money  or  increase  its  capital;  neither  was  it  permitted 
"upon  any  pretext  whatsoever"  to  demand  or  to  receive 
upon  its  loans  or  discounts  any  interest  exceeding  6  per 
cent  per  annum. 

For  forging  the  common  seal  of  the  bank  or  its  bonds, 
bills,  and  obligations,  or  for  passing  them,  knowing  them 
to  be  forgeries,  the  penalty  was  imprisonment  for  not  less 
than  six  months  nor  more  than  six  years  at  hard  labor, 
with  the  picturesque  options,  in  the  discretion  of  the  court, 
of  a  public  whipping  or  of  standing  in  the  pillory.  But 
for  making  or  engraving  plates  or  tools  for  counterfeiting 
the  bills  of  exchange,  promissory  notes,  undertakings,  or 
orders  of  the  bank,  the  punishment  provided  was  death 
as  a  felon  without  benefit  of  clergy. 

Two  other  provisions  need  be  cited  to  make  this  out- 
line of  a  characteristic  early  charter  complete.  Both 
saved  the  rights  of  the  province.  The  thirteenth  section 
of  the  act  made  it  plain  that  the  person  administering 
the  government  of  the  province  for  the  time  being,  or 
either  house  of  the  legislature,  might  require  from  time  to 
time  statements  under  oath  of  the  bank's  capital  stock, 
debts  due,  notes  in  circulation,  and  cash  on  hand — this 
"for  the  better  security  of  the  pubhc."  The  twenty-first 
section  continued  the  life  of  the  bank  to  June  i,  1831, 
with  the  proviso  "that  if  before  the  expiration  of  that 
period  it  shall  at  any  time  be  found  expedient  to  establish 
a  Provincial  Bank  in  this  Province,  and  that  this  same  be 
so  established  by  an  act  of  Legislature  thereof,  then  and 
in  that  case  the  said  corporation  of  the  President,  Directors, 


History     of    Banking    in     Canada 

and  Company  of  the  Bank  of  Montreal  shall  from  and  after 
the  expiration  of  seven  years  from  the  passing  of  such  Act, 
be  dissolved,  and  all  and  every  the  powers,  rights,  privi- 
leges, and  benefits  hereby  given  and  granted  to  the  said 
corporation  shall  from  thenceforth  wholly  cease  and 
determine,  everything  in  the  present  Act  contained  to  the 
contrary  in  anywise  notwithstanding." 

Under  charters  of  similar  purport  the  capital  of  the 
Quebec  Bank  was  fixed  at  £75,000,  that  of  the  Bank  of 
Canada  at  £200,000.  But  it  was  not  until  1831  that  the 
Quebec  Bank  had  called  up  the  full  amount,  or  that  the 
Bank  of  Montreal,  which  had  had  £87,500  paid  up  in 
18 1 8,  could  report  its  joint  stock  at  the  £250,000  author- 
ized by  the  act.  In  1824  the  stock  of  the  Quebec  Bank 
was  reported  at  £51,377,  of  the  Montreal  at  £187,500, 
and  of  the  Bank  of  Canada  at  £93,825.  The  latter,  find- 
ing the  trade  in  American  exchange  less  lucrative  than 
expected  and  meeting  heavy  losses  besides,  gradually 
wound  up  its  business,  though  without  loss  to  its  cred- 
itors, and  some  time  prior  to  1831  ceased  banking 
altogether. 

Modest  as  were  these  capitals  of  Lower  Canada,  the 
bankers  of  the  upper  province  were  unable  to  report 
anything  like  them.  The  copartnership  or  association  at 
Kingston  probably  never  had  more  than  £11,500  of  cap- 
ital paid  in.  That  was  about  the  sum  at  which  it  stood 
when,  partly  because  of  internal  dissensions,  partly  by 
reason  of  unskilled  or  ill-advised  operations,  the  partner- 
ship became  bankrupt  late  in  September,  1822.  Against 
a  note  issue  and  other  debts  to  the  public  of  some 
£19,000,  the  bank  had  due  to  it  on  bond  and  note  a  sum 

S.  Doc.  332,  61-2 2  13 


National    Monetary     Commission 

rising  £22,000.  The  liquidation,  however,  was  sadly 
mismanaged  from  the  outset  and  after  sixteen  years  and 
more  there  was  still  a  sum  of  £5,000  due  divers  creditors 
of  Upper  Canada's  first  bank.  The  shareholders  appear 
to  have  lost  all  they  put  in. 

Notwithstanding  the  backers  of  the  chartered  Bank  of 
Upper  Canada  had  proposed  the  ambitious  capital  of 
£200,000,  at  the  time  their  bill  was  presented  to  the  leg- 
islature, they  soon  had  sufficient  experience  of  the  scarcity 
of  coin  in  the  province  to  obtain  a  reduction  of  50  per  cent 
in  the  sum  of  specie  required  to  be  paid  in  before  the 
beginning  of  business.  By  an  act  of  1822,  the  bank  was 
allowed  to  start  with  £10,000  paid  in.  In  1823  the 
authorized  capital  was  also  reduced  by  half  to  £100,000^ 
at  the  same  time  as  the  provincial  government  was  em- 
powered to  appoint  four  of  the  fifteen  directors.  Two 
years  from  the  foundation  of  the  bank  in  1822,  the  capital 
paid  up  was  only  £28,181 ;  in  1826  it  stood  at  £54,037;  in 
1828  at  £72,410,  and  not  until  1830  did  it  reach  £100,000. 
Half  the  £10,640  or  less,  with  which  the  bank  had  begun 
operations,  was  found  by  the  provincial  government.  As 
early  as  181 7,  and  again  in  1819,  the  legislature  of  Upper 
Canada  had  made  a  certain  improvement  upon  Lower 
Canada  acts  in  so  far  as  the  acts  passed  here  forbade  the 
bank  to  issue  notes  for  less  than  5s.,  and  provided  that 
upon  refusing  payment  of  its  bills  in  specie  a  bank  should 
suspend  proceedings  until  payment  had  been  resumed. 
The  Bank  of  Upper  Canada  was  expressly  authorized  to 
establish  branches.  The  lower  province  establishments, 
on  the  other  hand,  were  nowhere  enjoined  to  confine  their 
operations  to  one  place. 

14 


History    of    Banking    in     Canada 

No  one  can  pretend,  after  scrutiny  of  the  earliest 
Canadian  charters,  that  the  laws  governing  banking  were 
strict  or  their  conditions  severe.  Provisions  now  reckoned 
indispensable  for  protecting  the  pubHc  were  either  lacking 
altogether,  or,  if  embodied  in  the  legislation,  were  defi- 
cient in  form  and  devoid  of  statutory  sanction.  The 
liability  of  shareholders,  for  example,  was  limited  to  the 
amount  of  their  subscriptions  to  the  stock.  This  formed 
some  protection  to  public  creditors  so  long  as  the  stock 
was  not  all  paid  up,  but  once  the  authorized  capital  had 
been  reached,  the  safeguard  of  a  contingent  liability 
ceased.  The  issue  of  notes  could  proceed  to  any  length, 
so  long  as  the  total  debts  of  a  bank,  over  and  above  its 
deposits,  did  not  exceed  thrice  its  capital  stock.  No 
apparatus  was  provided  to  insure  the  specie  payment  of 
the  shares  or  of  calls  upon  the  shares,  before  the  bank 
began  to  exercise  its  rights.  No  Specific  penalty,  except 
in  Upper  Canada,  and  then  it  was  a  mild  one,  was  imposed 
for  suspension  of  .specie  payment.  Neither  were  there 
safeguards  against  a  bank's  lending  on  its  own  shares,  or 
against  directors  unduly  exploiting  in  their  own  behalf 
their  institution's  control  of  funds.  The  one  offense 
deserving  forfeiture  of  charter,  in  the  opinion  of  the 
Lower  Canada  legislature,  seems  to  have  been  the  loan  of 
money  to  a  foreign  state. 

As  it  happened,  however,  those  who  owned  and  man- 
aged the  first  banks  were  animated  by  another  purpose 
than  to  take  advantage  of  the  law's  defects.  What  they 
wanted,  apparently,  was  to  make  as  large  a  legitimate 
profit  as  they  might  in  relying  upon  legitimate  means* 
The  original  proprietaries  of  the  Bank  of  Montreal  and 

15 


National    Monetary     Commission 

Quebec  Bank  included  a  goodly  proportion  of  the  wealth 
and  respectability  in  those  cities,  and  that  of  the  Bank  of 
Upper  Canada,  though  politics  rather  than  commerce 
predominated,  was  made  up  of  those  who  had  won  stand- 
ing, esteem,  and  power  in  the  province.  Both  the  Bank  of 
Montreal  and  the  Bank  of  Upper  Canada  had  the  advan- 
tage of  alliance  with  the  dominant  political  party ;  the  Bank 
of  Montreal  was  favored  also  with  the  government  account. 
Until  1832  no  other  bank  was  chartered  in  either  province. 

In  the  lower  province,  the  prejudice  of  the  French 
Canadians  against  paper  currency  and  their  reluctance  to 
accord  their  English  neighbors  legislative  favors  in  the 
shape  of  charters;  in  the  upper  province,  the  determina- 
tion of  an  efficient  and  well  intrenched  political  faction  to 
keep  the  valuable  franchise  of  banking  in  its  own  hands 
along  with  any  other  available  opportunity  for  power  or 
profit — these  were  the  factors  that,  for  the  time  at  any 
rate,  prevented  the  multiplication  of  banks.  The  influ- 
ence in  the  legislative  council  of  the  partners  of  a  private 
banking  company  formed  in  1825  hindered  the  issue  of  a 
legislative  charter  to  any  bank  in  Nova  Scotia  before 
1832,  while  with  one  small  exception,  no  bank  was  author- 
ized in  New  Brunswick  between  1820  and  1835.  The 
difficult  period  of  youth,  accordingly,  was  passed  by  all 
the  early  banks  in  communities  where  lenders  of  money 
were  able  more  or  less  to  pick  their  risks. 

It  must  not  be  forgotten,  however,  that  these  were  also 
communities  to  which  the  practice  of  banking  was  so  far 
familiar  only  by  hearsay,  by  experience  with  like  institu- 
tions in  the  United  States,  or  by  use,  outside  of  banks,  of 
the  contracts,  securities,  money,  bullion,  and  pledges  in 

16 


History    of    Banking    in     Canada 

which  banks  dealt.  All  the  colonies  were  accustomed  to 
the  trade  in  bills  of  exchange,  for  the  great  bulk  of  manu- 
factures and  a  large  proportion  of  the  supplies  used  in 
any  of  them  had  to  be  imported  from  the  south,  the  West 
Indies,  or  Great  Britain.  Furthermore,  it  was  the  custom 
of  the  British  military  establishment,  as  of  the  French 
commissariat  before  the  conquest,  to  find  funds  for  local 
expenditures  in  part  at  least  by  the  sale  of  bills  instead  of 
by  the  import  of  specie.  New  France  had  learned  the 
disadvantages  of  a  legal-tender  paper  currency  through 
a  grievous  experience  with  "card  money"  issued  during 
the  closing  decades  of  French  rule  in  enormously  excessive 
quantities,  quite  beyond  the  power  or  inclination  of  the 
home  treasury  to  redeem.  Hence  a  deep-seated  distrust 
of  paper  among  the  French  population  of  Lower  Canada 
and  a  disposition  to  hoard  coin.  In  Nova  Scotia,  a  first 
issue  of  treasury  notes  had  been  made  in  1812,  and  other 
issues,  all  reissuable  but  not  all  of  them  redeemable  on 
demand,  followed  in  181 3,  181 7,  and  18 19.  In  the  two 
Canadas,  finally,  apart  from  divers  private  promises,  there 
had  circulated  during  the  war  of  181 2  and  for  some  time 
thereafter,  the  so-;:alled  army  bills — legal-tender  paper 
paid  out  by  the  commissary-general  of  the  forces  in  exchange 
for  supplies  for  the  troops,  and  redeemable  in  bills  of 
exchange  upon  the  British  treasury.  With  these  last  the 
experience  had  been  satisfactory  to  a  degree.  Why  it  had 
been  satisfactory  the  Canadians  of  the  time  seem  not 
always  to  have  understood.  Some  of  them,  at  all  events, 
overlooked  the  fact  that  they  were  selling  their  produce  at 
high  prices  and  getting  cheap  bills  of  exchange  wherewith 
to  pay  for  imports.     Some  failed  to  see  that  the  wealth  and 

17 


National    M  o  n  et  ar  y     Commission 

prosperity  of  the  colony  were  increasing  swiftly  under  the 
stimulus  of  a  copious  inflow  of  capital  from  without. 
Such  persons  were  inclined  to  explain  the  good  times  that 
lasted  through  the  war  and  for  several  years  beyond  the 
peace  merely  by  the  abundance  of  a  circulating  medium, 
convenient,  easily  recognized,  and  of  a  uniform  value. 

Inasmuch  as  the  colonies  had  no  coins  of  their  own 
minting  and  most  of  the  British  specie  was  promptly 
exported  across  the  Atlantic,  a  uniform  currency  had  to  be 
a  paper  currency.  Legal  tender,  consisting  of  French, 
American,  South  American,  Spanish,  Portuguese,  and 
Mexican  coins,  such  as  these  colonies  had,  each  coin  given 
its  special  rating  by  the  act  which  made  it  current,  could 
scarcely  furnish  a  uniform  circulating  medium  in  any  cir- 
cumstances. Thus  the  money  changer  found  his  opening 
and  the  shrewd  peddler  or  trader  took  every  chance  to 
pay  out  overrated  coin  and  to  retire  the  gold  or  silver 
pieces  worth  more  elsewhere  than  in  Montreal  or  Quebec. 
Later  on,  even  the  banks,  when  called  upon  to  redeem 
notes  in  specie,  did  not  always  scorn  to  furnish  coin  of  a 
bullion  value  so  far  below  the  nominal  rating  that  the 
applicant  stood  to  lose  less  by  paying  a  stiff  rate  of 
exchange  for  the  means  of  remittance  he  desired.  While 
the  Imperial  Government  expenditure  on  the  one  side  and 
on  the  other  the  British  North  American  export  of  timber, 
furs,  grain,  and,  later  on,  pork  and  flour,  generally  gave 
the  colonies  a  favorable  balance  as  against  Britain,  and 
the  exports  to  the  south  or  sales  of  exchange  thither  a 
favorable  balance  in  the  United  States  as  well,  about  the 
only  practicable  way  to  reahze  this  balance  was  by  import 
of  specie  over  the  difficult  and  costly  routes  from  Boston 

i8 


History     of    Banking    in     C  an  ad 


a 


and  New  York.  Once  the  equilibrium  was  restored,  the 
Canadian  colonies  were  subject  to  a  pretty  regular  drain 
of  the  smaller  coin  through  the  traffic  with  the  American 
settlements  along  their  southern  borders.  Not  infre- 
quently it  was  necessary  to  make  considerable  payments 
for  produce  shipped  from  the  United  States  by  the  St. 
Lawrence.  With  the  reduction  of  the  imperial  forces  in 
the  colonies,  and  with  the  decline  in  the  demand  for 
their  exports,  which  occurred  in  1815-1819,  the  compara- 
tive comfort  of  the  Canadian  position  sensibly  diminished. 
The  situation,  nevertheless,  was  to  all  appearances  one 
in  which  there  were  both  need  and  opportunity  for  banks. 
In  satisfying  the  needs  of  their  communities  for  currency 
and  capital  the  banks  might  have  -been  tempted  unduly 
to  expand  the  structure  of  credit  or  to  inflate  their  note 
issues  beyond  the  point  of  safety.  But  best  to  take 
advantage  of  the  lucrative  opportunities  of  the  specie 
and  exchange  market,  they  were  obliged  to  keep  their 
resources  fairly  well  in  hand,  their  position  tolerably 
sound.  From  the  outset,  directors  and  cashiers  appear 
to  have  kept  steadily  in  mind  the  prospect  of  calls  for 
redemption  either  in  specie  or  exchange.  In  Lower 
Canada,  of  course,  competition  for  the  note  issue  caused 
each  of  the  banks  to  act  on  the  other  as  a  check.  In  the 
upper  province,  where  the  Bank  of  Upper  Canada  had  no 
local  rival,  there  were  always  need  for  exchange  and  a 
well-nigh  constant  call  for  coin  in  the  American  trade. 
Though  it  ceased  to  redeem  its  own  notes  in  Montreal 
in  1826,  it  was  still  obliged  to  furnish  exchange  upon  the 
Lower  Canadian  towns.  Not  seldom  pressure  was  suffered 
from  agents  or  customers  of  the  Lower  Canada  banks,  such 

19 


National     Monetary     Commission 

pressure  being  applied  in  the  territory  the  Bank  of  Upper 
Canada  reckoned  pecuHarly  its  own. 

Hence  even  in  the  western  community,  where  nearly 
forty  years  were  to  pass  before  strictly  commercial  bank- 
ing was  generally  to  supersede  lending  upon  accommoda- 
tion paper,  or  land  banking  thinly  veiled,  there  was 
abundant  incentive  to  prudent  administration.  Rather 
than  statutory  precautions,  it  was  the  process  of  frequent 
redemption,  the  competition  between  banks,  the  size  of 
the  capitals  which  their  proprietors  had  at  stake — large, 
compared  to  the  resources  and  development  of  their 
several  communities — and  the  restriction  of  the  banking 
franchise  to  a  few  which  saved  the  first  Canadian  banks 
from  disastrous  error  and  their  creditors  from  serious 
loss. 

What  was  true  then  held  true  through  most  of  the  sub- 
sequent history  of  the  Canadian  banks.  Worse  frauds 
and  more  scandalous  bank  failures  occurred  under  the 
developed  Dominion  legislation  of  1871  and  1880  than  in 
any  of  the  provinces  prior  to  confederation.  From  1829 
to  1866,  indeed,  not  one  bank  chartered  by  Upper  Canada 
Lower  Canada,  or  Nova  Scotia  went  down  in  failure. 
There  were  losses,  to  be  sure,  and  heavy  ones,  notably  in 
the  middle  twenties,  and  again  after  the  panic  of  1837,  in 
the  trying  times  of  1848-49,  and  after  the  collapse  of 
1857,  but,  barring  the  expressly  authorized  suspensions 
of  1 837-1 839,  they  managed,  all  of  them,  and  throughout 
the  term,  to  uphold  their  solvency  and  to  maintain  the 
redemption  of  their  obhgations  in  coin. 

To  describe  the  scene  of  the  banks'  expansion  in  num- 
bers, offices,  resources,  and  strength,  to  provide  the  set- 


History    of    Banking    in     Canada 

ting  for  the  story  of  their  development,  would  be  an 
excursus  into  economic  history  beyond  this  paper's  scope. 
It  will  be  necessary,  for  the  most  part,  to  confine  the 
sketch  of  events  preceding  1867,  to  an  account  of  the 
changes  in  the  statutes,  regulating  banks.  And,  since 
the  two  Canadas,  now  known  as  Ontario  and  Quebec, 
which  were  united  into  the  Province  of  Canada  in  1841, 
became  the  dominant  Provinces  in  the  Dominion,  pos- 
sessing at  Confederation  the  largest  number  of  banks  and 
the  most  important  body  of  bank  legislation,  the  narra- 
tive will  be  concerned  with  the  Canadian  development  in 
the  narrower  sense  of  the  term. 


National     Monetary     Commission 


II. — Bank  Expansion  and  Regui^ation,  1825-1841. 

English  immigration,  the  spread  of  clearings  and  the 
opening  up  of  farms,  the  growth  of  the  milling  industry 
and  generous  expenditures  upon  public  works,  largely  of 
funds  from  abroad,  combined  to  give  the  Upper  Cana- 
dian economy  a  decided  upward  swing,  late  in  the  twen- 
ties. How  marked  was  the  enhancement  of  prosperity 
of  the  Province  generally,  the  increase  of  land  values  or 
the  improvement  of  trade,  is  suggested  by  the  circum- 
stance that  in  1830  the  Bank  of  Upper  Canada's  capital 
had  been  paid  up  in  full,  and  stood  at  £100,000,  as 
against  £10,640  eight  years  before.  Its  discounts — 
£107,598  at  the  end  of  1826 — were  £260,557  at  the  begin- 
ning of  1831;  its  circulation  had  risen  from  £87,339  to 
£187,039  and  its  specie  from  £19,066  to  £42,664.  A 
dividend  of  8  per  cent  every  year  but  the  first  since 
organization,  and  two  bonuses  of  6  per  cent  each,  made 
the  tidy  sum  of  £51,000,  distributed  to  shareholders 
inside  of  nine  years.  Notwithstanding  the  increase  of 
its  resources,  the  bank  found  itself  unable  to  meet  the 
rapidly  growing  demand  for  loans. 

Accordingly,  the  management  asked  the  authority 
fiu-ther  to  increase  the  stock.  In  the  session  of  1831-32 
the  legislature  permitted  the  addition  of  £100,000.  In 
the  same  session,  the  petition  of  merchants  and  others 
of  Kingston,  who  had  been  seeking  a  charter  since  1829, 
was   finally    given   a   favorable    hearing,    and    authority 


History     of    Banking    in     Canada 

accorded  for  the  organization  in  their  city  of  the  Com- 
mercial Bank  of  the  Midland  district,  with  a  capital 
stock  of  £100,000.  Except  that  returns  of  condition 
were  required  in  greater  detail  and  in  the  form  of  a  bal- 
ance sheet,  this  charter  showed  few  advances  over  that 
granted  the  older  bank  thirteen  years  before.  The  bank 
was  suffered  to  begin  business  with  £40,000  subscribed 
and  £10,000  paid  up;  but  both  the  banks  were  for- 
bidden at  this  time,  on  penalty  of  charter  forfeiture,  to 
lend  upon  the  security  of  their  own  shares.  \Yhen  the 
Bank  of  Upper  Canada  opened  subscription  books  for  the 
8,000  new  shares,  six  months  after  the  passing  of  the  act, 
individual  subscriptions  being  limited  to  80  shares,  appli- 
cations were  received  for  no  less  than  25,679  shares,  or 
£320,987  los.  In  Upper  Canada,  at  least,  there  were 
already  in  evidence  an  enthusiasm  for  banking  ventures, 
a  belief  in  the  sovereign  advantages  of  banking  establish- 
ments, which  were  soon  to  pass  all  bounds. 

Rather  more  than  a  year  after  both  the  old  and  the 
new  banks  had  begun  operations  under  the  acts  of  1832, 
rumors  of  royal  disallowance  of  the  legislation  became 
curr^ent.  Through  15  or  more  agencies,  the  banks  had 
discounted  some  £450,000.  Their  circulation  amounted 
to  £300,000.  The  rumor  caused  a  panic,  a  panic  inten- 
sified when  the  banks  ceased  discounting,  and  only 
allayed  when  they  began  again  to  lend.  In  point  of  fact, 
the  colonial  office  had  not  gone  the  length  of  recommend- 
ing the  disallowance  of  the  acts.  But,  under  date  of 
May  9,  1833,  the  authorities  of  Downing  Street  threatened 
so  to  do  unless  the  measures  were  amended  in  accord 
with  certain  regulations  of  1830  framed  by  the  committee 

23 


National    Monetary     Commission 

of  the  privy  council  for  trade  and  plantations  for  observ- 
ance in  ail  legislation  for  the  creation  of  new  banks  in 
the  colonies  or  for  the  increase  of  the  capital  of  old  ones. 
"These  were  precautions,"  said  the  secretary  of  state 
for  the  colonies,  voicing  the  opinion  of  the  lords  of  the 
treasury,  "rendered  more  necessary  by  an  experience  of 
the  prejudicial  effects,  which  have  in  former  periods  re- 
sulted from  the  extension  of  the  banking  system  in  the 
neighboring  states  without  the  restrictions  they  impose." 
In  additi^on  to  those  prescribed  in  1830,  the  lords  of  the 
treasury  were  of  the  opinion,  certain  other  conditions 
should  be  insisted  upon  with  a  view  to  the  security  of 
the  pubhc,  "both  as  regards  the  certainty  of  the  con- 
vertibility of  the  paper  issued  into  specie  on  demand, 
as  well  as  the  prevention  of  a  series  of  fluctuations  in 
the  amount  and  value  of  paper  money,  which  are  at- 
tended with  consequences  yet  more  disastrous  to  the 
community." 

In  deference,  however,  to  the  emphatic  protests  of  rep- 
resentatives of  Upper  Canada,  who  were  in  London  at 
that  time,  the  regulations  thus  revised  and  expanded  in 
May  were  modified  in  October.  The  substance  of  those 
suggested  for  incorporation  in  the  charter  of  the  Com- 
mercial Bank  was  as  follows: 

1 .  The  charter  of  the  bank  to  be  forfeited  for  suspension 
of  specie  payments  for  more  than  sixty  days  consecu- 
tively or  within  a  year. 

2.  Notes  for  circulation  to  be  dated  at  the  place  of  issue 
and  to  be  payable  on  demand,  in  specie,  at  the  place  of 
date  and  issue,  as  well  as  at  the  principal  office  of  the 


24 


History     of    Banking    in     Canada 

bank,  it  being  expressly  understood  that  it  is  not  intended 
by  this  regulation  that  any  branch  establishment  shall  be 
called  upon  to  pay  the  notes  either  of  the  principal  bank 
or  of  the  other  branches. 

3.  Half  the  subscribed  capital  to  be  paid  in  forthwith; 
the  moiety  at  the  discretion  of  the  bank. 

4.  Directors,  whether  as  drawers,  acceptors,  or  indorsers, 
not  to  have  more  than  one- third  the  total  discounts. 

5.  The  bank  not  to  hold  its  own  stock  or  to  make  ad- 
vances thereon  to  shareholders. 

6.  Weekly  balance  sheets  to  be  kept  at  the  bank's  head 
office,  and  from  these  to  be  prepared  half-yearly  average 
statements  of  the  assets  and  liabilities,  which,  together 
with  a  statement  of  the  rate  and  amount  of  the  dividend 
and  of  the  amount  of  reserved  profits,  shall  be  furnished 
to  the  government  and  published;  further  returns  to  be 
furnished  if  called  for  and  if  required  to  be  verified  under 
oath. 

7.  The  shareholders  to  be  respectively  liable  for  the 
engagements  of  the  company  to  the  extent  of  twice  the 
amount  of  their  subscribed  shares — that  is,  to  the  amount 
of  their  subscribed  shares  and  to  an  equal  amount  in 
addition. 

8.  The  bank  not  to  lend  or  to  make  advances  upon 
lands  or  other  property  not  readily  available  to  meet  its 
engagements,  but  to  confine  its  transactions  to  what  are 
understood  to  be  the  legitimate  operations  of  banking, 
namely,  advances  upon  commercial  paper  or  good  securi- 
ties, and  general  dealings  in  money,  bills  of  exchange,  and 
bullion. 


25 


National     Monetary     Commission 

Only  the  second,  fourth,  sixth,  and  eighth  provisions 
were  to  apply  to  the  Bank  of  Upper  Canada  generally; 
the  third  and  seventh  to  nevv^  shareholders  only. 

The  revised  provisions  found  scarcely  less  disfavor  in 
the  eyes  of  the  Canadians  than  those  of  May.  True,  the 
president  of  the  Commercial  Bank,  "to  avert  the  ruin  of 
his  shareholders,"  undertook  to  submit  to  the  conditions 
of  the  lords  of  the  treasury,  but  for  the  time  being  the 
legislature  would  have  none  of  them.  Those  which  were 
not  absolutely  new,  which  were  colorably  covered  by 
clauses  in  the  existing  charters,  they  criticised  as  unnec- 
essary; the  limit  put  upon  directors'  discounts  was  de- 
scribed as  higher  than  any  permitted  in  the  practice  of 
the  banks.  What  aroused  the  strongest  objection  was 
the  imposition  of  a  double  liability  upon  holders  of  bank 
shares.  This  was  locally  reckoned  little  short  of  an  at- 
tempt, by  intimidating  capital,  to  stifle  the  prosperity 
and  stunt  the  growth  of  a  community  already  suffering 
from  a  famine  of  capital.  The  banks,  on  their  side,  op- 
posed the  regulation  making  notes  payable  not  only  at  the 
place  of  date  and  issue,  but  also  at  the  principal  office  of 
the  promissor,  as  altogether  too  difficult  and  expensive  of 
observance.  The  heavy  outlays  for  transporting  specie, 
and  the  dispersal  of  reserves,  or  the  considerably  larger 
reserves  which  would  be  needed,  were  they  subjected  to 
this  obligation,  lent  a  certain  merit  to  their  contention. 
What  the  banks  were  doing,  and  wished  to  keep  on  doing, 
was,  to  date  notes  at  the  principal  office  and  to  conduct 
branches  merely  as  offices  of  discount  and  deposit  which 
would  pay  out,  as  circulation  was  needed,  the  notes  of  the 
parent  establishment. 

26 


History     of    Banking    in     Canada 

Instead  of  amending  the  Commercial  Bank's  charter  in 
the  manner  proposed  by  the  imperial  authorities,  the 
legislature  of  Upper  Canada,  after  receiving  the  report  of 
a  committee  charged  with  considering  the  question  in  all 
its  bearings,  adopted  an  address  to  the  King,  deploring  the 
exercise  of  the  royal  veto  and  praying  that  the  bank  acts 
might  stand  as  they  were.  Objection  to  any  other  course 
was  offered,  not  only  because  of  the  confusion  and  distress 
which  would  follow  the  disallowance,  but  also  because  of 
the  undesirability  of  imperial  interference  in  what  the 
Canadians  were  pleased  to  consider  an  entirely  local  affair. 
In  acquainting  the  lieutenant-governor,  in  May,  1834,  of 
the  King's  purpose  not  to  disallow  the  acts,  the  secretary 
of  state  for  the  colonies  justified  this  decision  by  the  long 
time  the  acts  had  been  in  force,  the  excellent  practice  of 
the  banks,  and  the  inconvenience  likely  to  follow  any  other 
course.  But  at  the  same  time  he  took  care  to  insist  upon 
the  right  of  the  Crown  to  impose  such  conditions  as 
might  be  thought  necessary  for  the  regulation  of  colonial 
banks. 

Shortly  before  the  Upper  Canadian  charters  had  drawn 
the  criticism  of  the  colonial  office,  a  new  bank  had  been 
chartered  by  the  legislature  of  the  lower  province  in  answer 
to  a  petition  from  merchants  and  others  of  Montreal.  But, 
notwithstanding  its  lack  of  provisions  corresponding  to 
the  original  proposals  of  the  committee  for  trade  or  to  the 
revised  regulations  of  1833,  the  act  incorporating  the  City 
Bank,  met  with  no  objection  from  Downing  Street,  except 
on  the  score  that  the  penalties  provided  against  counter- 
feit and  embezzlement  were  too  severe.  When  this  fault 
was  corrected,  the  act  was  approved.     The  home  authori- 

27 


National    M  o  n  e  t  ar  y     Commission 

ties,  consequently,  were  more  or  less  exposed  to  the 
charges  of  inconsistence  which  the  outraged  Upper  Cana- 
dians freely  made.  But  while  the  first  effort  to  impose 
limits  to  colonial  autonomy  in  the  matter  of  banking  was 
not  insistently  carried  through,  it  proved  possible  in  the 
end  to  subject  Canadian  banks,  not  only  to  the  restrictions 
already  cited,  but  also  to  additional  regulations  consider- 
ably more  comprehensive  and  distinctly  better  devised. 

The  City  Bank  was  not  allowed  to  begin  business  until 
£40,000  of  capital,  out  of  £200,000  authorized,  had  been 
paid  up  and  was  in  the  actual  possession  of  the  corpora- 
tion. Notes  for  less  than  £1  5s.  ($5)  currency,  were 
limited  to  a  sum  not  greater  than  one-fifth  of  the  capital 
stock  paid  up.  Notes  for  less  than  5s.  were  forbidden. 
The  total  debts,  as  usual,  were  limited  to  thrice  the  capital 
stock  paid  up,  over  and  above  such  sums  as  might  be 
deposited  with  the  bank  for  safe-keeping.  The  charter 
was  forthwith  to  cease  and  determine  if  at  any  time  the 
circulation  should  exceed  the  limit  thus  set  by  the  act,  and 
the  president,  vice-president,  and  directors  accessory  to  an 
overissue  were  made  personally  liable.  The  bank,  finally, 
was  required  to  furnish  under  oath,  whenever  the  governor 
or  either  branch  of  the  legislature  required  it,  a  statement 
of  its  condition  in  the  form  of  a  balance  sheet.  This  form 
of  statement,  borrowed  from  Massachusetts  legislation, 
was  first  adopted  in  1830  at  the  time  the  charter  of  the 
Bank  of  Montreal  was  continued  until  1837.  Together 
with  like  new  restrictions  upon  note  issue,  and  the  penalty 
for  overissue,  the  requirement  was  further  embodied  in 
the  act  of  1831,  renewing  the  charter  of  the  Quebec  Bank, 
and  permitting  the  increase  of  its  capital  to  £225,000. 

28 


History     of    Banking    in     Canada 

Except  for  an  act  of  1836,  continuing  the  charter  of  the 
Quebec  Bank  for  one  year,  the  City  Bank's  charter  was  the 
last  banking  measure  to  pass  the  legislature  of  Lower 
Canada.  This  singular  restraint  is  not  to  be  explained  by 
any  failure  of  Lower  Canada  to  share  in  the  speculative 
expansion  of  the  time.  It  was  due  rather  to  the  opposi- 
tion of  the  legislative  council,  where  the  influence  of  banks 
already  chartered  was  strong,  to  the  establishment  of  new 
ones,  and  to  the  hostility  of  the  French  in  the  assembly 
to  the  enactment  of  charters  in  the  interest  of  English 
proprietors.  The  assembly  was  further  influenced  by  the 
circumstance  that  in  1835  a  partnership  en  commandite 
had  been  formed  by  a  number  of  French  Canadians  and 
opened  for  the  business  of  banking,  although  without 
legislative  sanction.  The  growing  bitterness  and  intensity 
of  the  political  controversy  served  but  to  enhance  the 
favor  with  which  the  French  Canadian  members  viewed 
the  venture  of  their  compatriots,  and  to  strengthen  their 
determination  to  keep  the  field  as  clear  as  possible  of 
further  competition. 

When  the  bank  charters  expired,  June  i,  1837,  the  cor- 
porations created  by  them  continued  their  business  at 
first  under  temporary  charters  extending  their  existence 
for  a  year,  obtained  from  the  Royal  Government,  or  under 
reversion  to  articles  of  association  such  as  those  by  which 
they  were  governed  in  18 17-1822.  Thus  the  Bank  of 
Montreal  shareholders,  although  a  royal  charter  had  been 
•obtained  at  considerable  expense,  sold  out  their  bank  to 
an  association  of  practically  identical  proprietary  and  pro- 
ceeded to  open  subscription  books  for  a  quarter  of  a  mil- 
lion additional  capital,  whereby  the  whole  stock  would 

S.  Doc.  332,  61-2 3  29 


National    Monetary     Commission 

be  increased  to  £500,000.  But  in  1838  and  1839  all 
three  of  the  banks  obtained  short-term  charters  from  the 
special  council  which  had  succeeded  the  constitutional 
government  of  Lower  Canada  upon  the  outbreak  of  the 
rebellion  of  1837.  These  measures  made  no  change  in  the 
obligations  or  the  privileges  previously  confirmed  to  the 
banks,  apart  from  authorizing  the  incr  ease  in  the  stock 
of  the  Bank  of  Montreal. 

In  a  time  of  grave  political  disorders,  culminating  in 
armed  resistance  to  established  authority,  the  passing  of 
banking  measures  is  generally  limited  to  the  absolutely 
indispensable.  It  was  certainly  the  case  in  Lower  Canada 
in  the  trying  years  1837-1839.  Even  when,  six  months 
before  the  rebellion  broke  out,  the  first  suspension  of 
specie  payments  was  decided  upon  by  the  banks,  it  was 
undertaken  without  authority  from  the  government. 
Whether  or  no  the  suspension  was  justifiable  must  always 
be  a  moot  question.  At  the  time  and  to  those  chiefly 
concerned  it  seemed  proper  enough,  if  for  no  other  pur- 
pose than  to  safeguard  the  banks'  stores  of  specie  against 
an  imminent  drain  to  the  United  States,  and  to  prevent 
too  severe  and  sudden  a  contraction  in  circulation  and 
discounts.  The  statistics  of  the  two  years,  which  are  rather 
full,  show  that,  rather  than  obtaining  an  appreciable 
expansion  of  loans,  the  public  were  subjected  to  con- 
siderable contraction,  and  that  in  procuring  specie  for 
the  payment  of  duties  or  exchange  for  the  settlement  of 
obligations  abroad  they  were  obliged  to  pay  as  high  as 
13  per  cent  premium.  The  average  discount  upon  sus- 
pended bank  paper  through  1837  was  6}4  to  'jy^  per  cent; 
in  1838,  about  2  per  cent. 


30 


History     of    Banking    in     Canada 

The  first  suspension  in  Lower  Canada  lasted  from  May, 
1837,  to  June,  1838;  the  second,  brought  on  by  a  renewed 
resort  to  arms  by  the  disaffected  element,  from  Novem- 
ber, 1838,  to  June,  1839.  For  the  second  suspension  the 
banks  had  the  authority  of  an  ordinance  of  the  special 
council.  During  the  term  of  the  suspension  banks  were 
forbidden  to  issue  notes  in  excess  of  their  paid-up  capital 
stock  or  to  pay  dividends.  Another  measure,  indirectly 
due  to  the  disturbed  financial  condition  both  of  the  Can- 
adas  and  of  the  United  States,  which  the  special  council 
passed  at  this  period,  was  directed  against  the  unauthor- 
ized issue  of  notes  under  £5  currency  and  the  issue,  how- 
soever, of  notes  for  less  than  5  shillings  currency. 

The  discount  upon  bank  notes  had  led  to  the  export  of 
much  of  the  country's  small  change,  and  resort  was  had 
anew  to  the  old  plan  of  merchants'  bons  and  due-bills  for 
small  sums.  The  suspension  had  also  furnished  a  chance 
after  their  own  heart  for  a  number  of  irresponsible  persons 
to  put  into  circulation,  remote  from  their  pretended 
domiciles,  the  notes  of  banks  which  had  no  existence  under 
the  law.  It  was  mostly  in  the  western  United  States  that, 
trading  on  the  favorable  reputation  of  the  chartered 
Canadian  banks,  these  operators  sought  their  victims  out, 
and  it  was  generally  a  Lower  Canadian  town  to  which 
they  imputed  the  home  of  their  banks.  By  redeeming, 
as  a  preliminary,  a  few  of  the  fraudulent  notes  at  the  pre- 
tended head  office,  or  at  some  temporary  office  in  New 
York  or  Chicago,  they  got  enough  credit  for  their  paper 
eventually  to  float  considerable  sums.  No  less  than 
seven  such  ventures  were  known  in  1837,  and  most  of 
them,  though  frequently  exposed,  kept  going  until  the 

31 


National    Monetary     Commission 

second  resumption  in  Lower  Canada  put  the  value  of  their 
pledges  to  too  severe  a  test. 

The  ordinance  of  the  special  council  limited  the  issue 
of  notes  for  less  than  £5  to  persons  or  banks  having  a 
license  from  the  government,  and  it  was  evidently  the 
piirpose  to  confine  these  licenses  to  companies  having 
royal  or  provincial  charters,  or  other  recognized  standing. 
Penalties,  triple  the  value  of  the  paper  concerned,  were 
provided  against  issues  for  less  than  £5  not  in  accord  with 
the  ordinance,  and  for  issues  less  than  5s.,  a  penalty  of  £5 
for  each  offense. 

Before  it  had  been  settled  whether  the  Commercial 
Bank's  charter  would  be  allowed  to  stand,  there  began,  in 
Upper  Canada,  an  insistent  agitation  for  numerous  addi- 
tional banks.  Those  already  established  also  appealed 
for  authority  to  increase  their  capital  stocks.  The  Re- 
formers, as  the  party  opposed  to  the  family  compact 
called  themselves,  were  strong  enough  in  the  assembly  to 
prevent  favorable  action  upon  a  petition  of  the  Bank  of 
Upper  Canada,  but  the  Commercial  Bank  was  permitted 
by  an  act  of  1835  to  open  books  for  an  additional  £100,000. 
The  subscriptions  for  this,  the  books  being  closed  after 
one  day,  amounted  to  £1,937,125.  The  only  regulations 
of  the  committe  for  trade  incorporated  in  the  act  per- 
mitting this  increase  were  the  limitation  of  directors' 
borrowings  to  one-third  the  total  discounts  and  the  pro- 
hibition of  loans  on  the  bank's  own  stock.  The  same 
year  one  further  incorporation  was  granted,  this  to  the 
Gore  Bank  of  Hamilton.  A  clause  of  its  charter,  unlike 
any  in  those  theretofore  passed,  forbade  any  incorporated 
company  to  hold  shares  in  the  bank,  except  they  had  been 

32 


History     of    Banking    in     Canada 

conveyed  to  such  company  in  payment  of  debts  to  it 
previously  contracted.  In  such  case  the  holder  was  not 
to  be  entitled  to  vote  upon  the  stock  for  the  election  of 
officers.  Furthermore,  there  was  imposed  upon  the 
shareholders,  for  the  first  time  in  any  bank  charter,  either 
of  Upper  or  Lower  Canada,  the  double  liability  for  which 
the  colonial  authorities  had  contended.  "The  share- 
holders of  said  bank,"  ran  the  charter,  "shall  be  respec- 
tively liable  for  the  engagements  of  the  company  to  the 
extent  of  twice  the  amount  of  their  subscribed  shares, 
including  the  amount  of  said  stock  held  as  aforesaid." 
To  enforce  this  liability  the  directors  were  authorized  to 
sue.  If,  in  case  of  failure,  the  shareholders  failed  within 
three  months  of  the  proper  time  to  appoint  directors,  or 
if  the  directors  neglected  or  refused  to  call  in  the  sums 
for  which  the  shareholders  were  liable,  the  government 
was  to  have  the  power  to  appoint  five  commissioners  to 
close  up  the  bank. 

Neither  the  Commercial  Bank  act  nor  the  Gore  Bank 
charter  imposed  the  penalty  of  charter  forfeiture  for 
suspension  of  payment  for  periods  exceeding  sixty  days, 
consecutively  or  during  the  year,  nor  were  frequent 
periodical  statements  required.  Commenting  upon  this 
failure  to  incorporate  all  the  regulations  suggested  by  the 
Home  government,  thq  secretary  of  state  for  the  colonies 
wrote  that,  had  he  been  governed  by  considerations  of  the 
commercial  policy  alone,  he  could  not  have  advised  the 
confirmation  of  the  acts  in  the  form  in  which  they  were 
passed.  The  introduction  of  the  double  liability  into  the 
Canadian  legislation  had  been  anticipated  by  Nova  Scotia 
in  1832,  when  the  Bank  of  Nova  Scotia  was  chartered, 

33 


National    Monetary     Commission 

and  by  New  Brunswick  in  1834,  in  the  act  incorporating 
the  Central  Bank  of  New  Brunswick. 

Thirty-odd  bills,  pertaining  to  banking,  were  brought 
before  the  legislature  of  Upper  Canada  between  1831  and 
1840.  It  was  proposed  "to  regulate  banking"  and  "to 
regulate  the  business  of  banking"  in  1831;  "to  make 
general  the  privilege  of  banking,"  in  1833-34;  and  "to 
establish  an  uniform  system  of  banking,"  in  1835.  A 
measure  "for  the  better  regulation  of  incorporated  and 
joint  stock  banks"  received  attention  in  1835  and  one 
"for  the  better  regulation  of  banks  and  for  protecting  the 
interests  of  the  public"  in  1836;  another,  "to  require 
banks  and  other  corporations  to  pay  a  part  of  their  profits 
to  the  receiver-general,"  in  1836-37.  None  of  these 
thirty  measures  passed.  Many  of  the  proposals  were 
brought  forward  by  the  Reformers,  who  affected  to  believe 
in  the  general  principle,  widely  advocated  in  the  states  to 
the  south,  of  opening  the  business  of  banking  under  some 
uniform  scheme  of  safeguards  to  whomsoever  should  wish 
to  enter  it.  But,  in  1833,  the  house  of  assembly  actually 
passed  a  bill  to  enable  the  receiver-general  to  issue  bank 
notes  chargeable  on  the  public,  and,  in  1835,  a  select 
committee,  after  prolonged  deliberation,  reported  to  the 
house  in  favor  of  the  establishment  of  a  provincial  bank 
on  the  basis  of  loans  guaranteed  by  the  province.  Eleven 
unsuccessful  petitions  for  incorporations  were  presented 
by  divers  groups  of  promoters  or  of  persons  wishing  to 
stake  capital  in  banks  between  1830  and  1840.  Most  of 
these,  of  course,  were  presented  prior  to  1837.  It  was 
truly  a  time  of  overtrading,  land  speculation,  commercial 
expansion,  increased  consumption,  excessive  borrowing, 

34 


History     of    Banking    in     Canada 

and  undue  conversion  of  floating  capital  into  fixed  forms. 
Through  the  whole  province  and  among  both  parties  there 
developed  a  confidence,  a  veritable  faith  in  the  magic 
power  of  more  banks,  or  of  more  bank  capital,  as  a  certain 
instrument  wherewith  to  augment  wealth  and  to  put  the 
colony's  prosperity  on  a  basis  sound  for  all  time.  Three 
or  four  other  petitions  were,  or  had  been,  before  the 
Assembly  at  the  time  the  Gore  Bank  obtained  its  act,  and 
in  the  following  year  the  Assembly  was  induced  to  pass  a 
number  of  charters,  only  to  see  them  rejected  by  the 
legislative  council.  In  the  session  of  1836-37  no  less  than 
nine  new  charters  were  passed  by  both  branches  of  the 
legislature. 

By  this  time,  fortunately  enough,  the  imperial  authori- 
ties had  seen  "only  too  much  reason  to  anticipate  the 
rapid  approach  of  a  period  in  which  the  multiplication  of 
ill-secured  representatives  of  coined  money  would  involve 
the  British-American  colonies  in  the  most  serious  financial 
difficulties."  Under  date  of  August  31,  1836,  the  colonial 
office  instructed  the  lieutenant-governor  not  to  permit 
any  act,  ordinance,  or  regulation,  touching  the  circulation 
of  promissory  notes,  or  the  local  legal  tender,  to  come  into 
operation  without  having  first  received  the  royal  sanction 
conveyed  to  him  by  the  secretary  of  state.  For  some  ten 
years  previous  the  royal  assent  had  been  accorded  by  the 
lieutenant-governor  to  measures  against  which  there  lay 
no  peculiar  objections  at  the  close  of  the  session  in  which 
they  were  passed.  Together  with  acts  permitting  addi- 
tions to  the  stock  of  the  three  existing  banks,  the  nine  new 
charters  authorized  the  increase  of  the  banking  capital  of 
the  province  from  £500,000  to  £4,500,000  currency,  the 


35 


National    M  o  n  et  ar  y     Commission 

increase  of  issue  privileges  from  £i  ,500,000  to  £13,500,000. 
One  project  was  to  make  the  province  a  much  larger  share- 
holder than  ever  in  the  Bank  of  Upper  Canada.  The 
colony  was  supposed  at  that  time  to  have  about  400,000 
of  population.  None  of  these  bills  was  disallowed  by  the 
home  government,  but  all  were  sent  back  to  the  legis- 
lature for  reconsideration.  Meanwhile  the  speculative 
collapse  of  1837  occurred  in  the  United  States,  and  the 
ardor  of  the  Upper  Canadians  was  somewhat  chilled. 
Not  one  of  the  reserved  bills  was  reenacted.  The  peculiar 
occasion  for  them  having  passed,  the  instructions  of  the 
colonial  office  for  the  reservation  of  currency  measures 
were  withdrawn  at  the  same  time  as  a  new  set  of  regula- 
tions for  incorporation  into  colonial  bank  charters  was 
recommended  to  the  local  legislature. 

While  the  prospect  of  obtaining  new  charters  was  still 
obsctired  by  the  political  jealousies  of  the  province,  efforts 
were  begun  toward  introducing  into  Upper  Canada  joint 
stock  banking  without  incorporation,  after  the  English 
model.  Four  of  these  organizations  were  formed  between 
1834  and  1836.  The  proposed  or  intended  capitals  were 
ambitious,  but  the  capital  paid  up  of  the  whole  group  was 
reported  in  June,  1837,  as  but  £98,023,  the  note  circula- 
tion, £17,148,  and  the  loans  and  discounts  at  £143,718. 
An  increase  of  such  ventures  was  stopped  by  an  act  of 
1837,  making  unauthorized  note  issue  a  misdemeanor, 
but  excepting  from  the  prohibition  the  four  banks  already 
established.  One  of  the  four — the  People's  Bank — was 
bought  by  the  Bank  of  Montreal  and  used  as  the  medium 
of  its  operations  in  Upper  Canada  until,  after  the  union  of 
the  provinces,  it  could  work  that  territory  in  its  own  name. 

36 


History     of    Banking    in     Can  ad 


a 


The  Agricultural  Bank  failed  in  1837  (November).,  The 
Niagara  Suspension  Bridge  Bank  appears  gradually  to 
have  wound  up  its  business  after  1841;  the  Farmers' 
Bank,  on  the  contrary,  continued  its  operations  in  a 
modest  way  at  all  events  until  some  time  after  1849. 

One  other  new  bank  appeared  on  the  scene  in  this 
period  and  began  business,  not  only  in  Upper  and  Lower 
Canada,  but  also  in  Nova  Scotia,  New  Brunswick,  and 
Newfoundland.  This  was  the  Bank  of  British  North 
America,  founded  for  the  most  part  upon  British  capital, 
by  British  investors  interested  in  the  possibilities  of 
profit  to  be  had  from  assisting  the  development  of  the 
North  American  colonies.  At  first  it  was  merely  a  co- 
partnership or  association,  working  under  a  deed  of 
settlement.  It  thus  became  necessary  to  obtain  from 
each  province  an  act  enabling  the  proprietors  to  sue  and 
to  be  sued  in  the  name  of  an  officer  domiciled  in  the 
province,  and  permitting  operations  which  might  other- 
wise be  prohibited  by  legislation  against  unauthorized 
banking.  To  this,  after  some  preliminary  conciliation  of 
the  local  banking  interests,  there  was  offered  little  ob- 
jection in  most  of  the  provinces,  the  prospect  of  a  sub- 
stantial addition  to  banking  resources  being  of  itself 
ample  to  win  general  favor  for  the  new  venture.  Five 
of  the  North  American  offices  first  projected  were 
opened  early  in  1837,  a  number  of  them  being  provided 
with  local  advisory  boards.  Three  more  were  by  way  of 
being  opened  shortly  and  four  others  were  in  prepara- 
tion. In  1840  the  bank  obtained  a  royal  charter,  one  of 
the  conditions  being  that  the  whole  capital  stock  of 
£1,000,000  sterling  should  be  fully  paid  up.     Curiously 

71564     • 


National     M  o  n  e  t  ar  y     Commission 

enough,  this  charter  specifically  confirmed  to  the  pro- 
prietary the  privilege  of  a  liability  limited  to  the  amount 
of  their  subscriptions  to  the  stock. 

Together  with  certain  of  the  Upper  Canadian  joint- 
stock  banks,  the  Bank  of  British  North  America  was 
largely  responsible  for  the  introduction  of  the  practice  of 
paying  interest  upon  deposits.  And,  although  the  plan 
had  been  followed  to  some  extent  by  the  Commercial 
Bank  of  the  Midland  district,  this  bank's  officers  also 
brought  into  wider  use  a  method  of  lending  understood 
by  the  colonists  as  the  Scotch  system  of  cash  credits — a 
plan  whereby,  upon  proper  security  being  given,  a  bor- 
rowing customer  overdrew  his  account  and  paid  interest 
upon  his  debit  balance.  It  might  be  doubted  whether  in 
any  community  where  the  value  of  land  at  forced  sale  is 
not  reasonably  near  to  what  will  have  to  be  paid  for  it 
in  private  treaty  the  Scotch  system  of  cash  credits  is  a 
practicable  plan.  But  however  this  phase  of  the  new- 
comer's policy  turned  out,  it  is  beyond  question  that  the 
bank  gave  valuable  service  to  the  country  in  which  it 
worked,  not  only  by  a  considerable  contribution  to  the 
loan  fund,  but  also  by  the  introduction  of  a  large  staff 
of  officers  trained  in  the  best  traditions  of  banking  in 
Great  Britain.  In  1868  no  less  than  eleven  sometime 
officers  of  the  institution  were  filling  the  chief  executive 
positions  of  Canadian  banks. 

The  banks  of  Upper  Canada  did  not  follow  the  example 
of  their  neighbors,  either  of  Lower  Canada  or  of  the 
United  States,  in  suspending  specie  payments  in  the 
spring  of  1837.  Authority  for  a  suspension  was  granted 
in  the  form  of  a  stay  law  passed  early  in  July,  but  this 

38 


History    of    Banking    in     Canada 

law  limited  note  issues  to  the  amount  of  paid-up  capital 
stock  and  forbade  the  sale  of  specie  during  suspension. 
All  the  banks  maintained  specie  payment  wntil  Septem- 
ber. On  the  29th  the  Commercial  Bank  took  advantage 
of  the  act.  During  this  term  and  until  it  also,  in  March, 
1838,  suspended,  the  Bank  of  Upper  Canada  effected  a 
radical  contraction  in  its  discounts  and  practically  ceased 
to  make  new  loans.  It  sought  and  found  good  profits 
in  the  trade  in  specie  and  exchange,  its  position  as  banker 
to  the  provincial  government  and  to  the  commissary- 
general  of  the  imperial  government  giving  it  excep- 
tionally good  command  both  of  coin  and  of  bills.  As  long 
as  exchange  was  at  a  stiff  premium  its  interest  was  to 
maintain  payments.  When  exchange  fell,  as  prepara- 
tions for  an  early  -resumption  in  the  United  States  pro- 
ceeded, the  bank's  interest  was  reversed,  and  a  large 
note  issue,  together  with  a  transfer  of  funds  from  New 
York  to  London,  became  the  thing.  From  the  legisla- 
ture, accordingly,  where  the  Reformers  had  lost  all 
power  or  prestige  through  the  hasty  and  ill-advised 
armed  uprising  of  December,  1837,  there  was  obtained 
an  act  permitting  disposal  of  specie  during  suspension 
and  issue  of  notes  to  twice  the  amount  of  the  paid-up 
capital  stock.  The  suspension  of  the  Gore  Bank  was 
authorized  shortly  after  that  of  the  Bank  of  Upper 
Canada.  In  May,.  1839,  the  term  of  the  stay  law  was 
extended  until  November  1,  1839,  and  it  was  not  until 
that  date  that  the  Upper  Canadian  banks  resumed 
redemption  in  coin. 

The  crisis  of   1837   was   as  severe  in  Upper  Canada, 
probably,  and  the  results  as  disastrous  to  the  community 

39 


National     Monetary     Commission 

generally,  as  anywhere  on  the  continent.  Much  distress 
was  caused  by  the  contraction  in  discounts,  and  many  a 
trader,  prosperous  at  the  high  tide  of  the  boom,  found 
himself  in  dire  want.  The  collapse  in  land  values  was 
of  the  most  serious  description,  serving  not  only  to  render 
worthless  the  security  of  many  engagements  entered 
directly  or  indirectly  upon  the  pledge  or  possession  of 
real  estate,  but  also  to  prostrate  confidence  in  the  col- 
ony's future.  Immigration  fell  off  to  a  nominal  volume; 
emigration  to  the  United  States  was  begun  by  alarming 
numbers  of  disappointed  settlers.  All  of  the  banks 
found  themselves  burdened  by  large  lockups  for  which 
the  sole  guaranty  of  payment  was  badly  depreciated  land 
or  the  faith  of  sorely  crippled  borrowers  of  accommodation 
loans.  Unquestionably  the  expenditure  upon  imperial 
account — outlays  necessitated  by  the  political  ferment 
and  disorders  of  the  end  of  1837 — helped  considerably  to 
ease  the  condition  both  of  the  community  at  large  and 
of  the  banks.  Considering  how  thoroughgoing  was  the 
speculative  inflation  which  preceded  the  collapse,  it  is  little 
short  of  remarkable  that  none  of  the  colony's  chartered 
financial  institutions  went  down  in  complete  wreck. 
Had  it  been  possible  or  permissible  in  1 835-1 837  to  float 
more  of  the  projects  which  were  put  forward  as  the 
colony's  economic  salvation,  it  is  not  to  be  doubted  that 
the  subsequent  confusion  would  have  been  indefinitely 
more  costly  and  long  drawn  out. 

As  it  was,  the  provincial  government  fell  into  nearly  as 
difficult  straits  as  the  commercial  and  agricultural  interests. 
One  outcome  of  this  situation  was  a  bill  to  authorize  the 
issue  of  bills  upon  the  credit  of  the  province,  passed  by 

40 


History    of    Banking    in-  Canada 

the  house  of  assembly  early  in  1838.  The  plan  was  for 
the  issue  of  small  bills,  payable  after  a  term,  but  receiv- 
able for  public  dues,  wherewith  to  continue  the  public 
works,,  augment  the  shrunken  circulating  medium,  and 
revive  the  colony's  trade.  The  legislative  council  threw 
the  measure  out.  The  following  session,  however,  both 
houses  passed  an  act  ' '  to  authorize  the  issue  of  bills  of 
credit."  They  were  to  be  for  £1  currency  each,  payable 
twelve  months  after  date,  chargeable  on  the  provincial 
revenue,  and  of  a  total  amount  not  to  exceed  £250,000. 
The  lieutenant-governor  reserved  the  measure  for  the 
consideration  of  the  authorities  at  hom.e.  The  colonial 
office  advised  against  the  allowance  of  the  act.  "The 
issue  of  such  an  amount  of  small  inconvertible  paper 
money  as  a  resource  for  sustaining  the  public  credit," 
wrote  the  colonial  secretary.  Lord  John  Russell,  "is  not 
to  be  justified,  even  by  the  present  exigency  of  public 
affairs." 

In  1 840  the  legislature  of  Upper  Canada  decided  to  dis- 
pose of  the  government  stock  in  the  province's  first 
chartered  bank.  The  8,000  shares  were  accordingly  sold 
for  £25,250,  the  par  value  being  £25,000.  In  eighteen 
years  the  dividends  and  bonuses  upon  this  early  invest- 
ment had  amounted  to  £38,315. 


41 


National    M on  et ar y     Commission 


III.— 1841-1866. 

To  temper  the  race  jealousies  in  the  lower  province^ 
to  allay  the  political  discontent  in  the  upper  one,  bet- 
ter to  order  the  finances  of  both,  and  to  establish  a 
firm,  impartial,  and  vigorous  government  throughout 
the  territory,  it  was  decided  in  1839  and  1840  to  unite 
the  two  Canadas  into  one  province.  The  union  of 
Upper  Canada  \Yith  Tower  Canada  and  the  creation  of 
the  new  Province  of  Canada  became  effective  on  the  loth 
of  February,  1841.  To  the  new  province  was  accorded 
the  boon  of  what  was  locally  termed  "responsible  gov- 
ernment " — government,  that  is,  by  a  committee  of  the 
parliamentary  majority,  acting  with  a  measure  of  auton- 
omy theretofore  persistently  withheld  by  the  authorities 
overseas. 

Under  the  jurisdiction  of  the  new  legislature  there 
naturally  came  the  ten  banks,  the  early  history  of  which 
has  already  been  sketched.  Exclusive  of  the  Bank  of 
British  North  America,  their  reports  of  condition  about 
July  1 ,  1841 ,  showed  a  total  capital  (paid  up)  of  £1 ,485,881 
currency,  note  issues  of  £871,423,  specie  for  £341,059, 
deposits  of  £626,292,  and  discounts  of  £2,693,723. 


42 


History    of    Banking     in     C an  ad 


a 


In  detail  these  reports  showed : 


Bank. 

Capital. 

Circula- 
tion. 

Total 
specie. 

Deposits 

Discounts. 

£500,000 

SO,  000 

200, 000 

115. 759 

200, 000 
200, 000 

45. 122 
100, 000 

75. 000 

^1227,048 

;£i25.  175 

;e234,686 

£936.  553 

City  Rank 

108, 572 
58,  211 

205,429 

142,849 

14,350 

77. 177 

37.787 

20,378 
8,  170 

82,890 
55. 125 
7.867 
26,385 
15.069 

50,  700 
25.360 

98.671 

144.093 

3.079 

14, 481 

55. 219 

340, 391 

Banque  du  Peuple 

Commercial    Bank    of    the 

Midland  District 

Bank  of  Upper  Canada 

Farmers'  Bank 

183.378 

461, 615 

406, 927 

54. 281 

165, 236 

145, 362 

Total.   

1,485,881 
0  690, 360 

871. 423 
50.564 

341.059 
45.828 

626, 292 
184, 899 

2, 693, 723 

Bank     of     British     North 

"■  Pounds  sterling. 

Three  of  the  Lower  Canada  charters  were  about  to 
expire,  and  there  were  several  applications  for  increased 
capital  in  preparation,  as  well  as  one  petition  for  a  new 
bank. 

At  the  outset,  the  question  of  the  revenue  of  the  new 
province  was  of  more  pressing  importance  than  the  ques- 
tion of  banks.  But  among  the  suggestions  advanced  for 
the  betterment  of  the  revenue  there  was  one  which 
threatened  the  most  important  source  but  one  of  all  the 
banks'  supply  of  funds.  That  was  the  note  issue  against 
general  assets  from  which,  in  conjunction  with  their 
shareholders'  capital,  the  banks  derived  means  equal  to 
seven-eighths  of  their  loans  and  discounts.  The  new 
governor-general,  Lord  Sydenham  (formerly  Charles  Pou- 
lett  Thompson) ,  a  friend  of  Lord  Overstone,  and  a  cham- 
pion of  the  "currency  principle,"  which  was  to  become 
the  basic  theory  of  Peel's  bank  act  of  1844,  proposed  that 


43 


National    Monetary     Commission 

the  issue  of  circulating  paper  be  undertaken  by  the  prov- 
ince. What  he  thus  sought  was,  first,  a  paper  currency 
perfectly  sure  of  convertibility  into  the  value  it  represented 
and  free  from  injurious  fluctuations;  second,  the  whole 
profit  of  the  issue  for  the  benefit  of  the  province,  a  profit 
estimated  at  £30,000  to  £35,000  yearly,  and  capable  of 
being  doubled  or  even  trebled  in  time;  third,  the  imme- 
diate acquisition  of  not  less  than  £750,000  for  expendi- 
ture by  the  province  upon  public  works.  To  reach  these 
ends,  Lord  Sydenham  suggested  the  establishment  of  a 
provincial  bank  of  issue,  which,  under  the  management 
of  three  commissioners,  was  neither  to  discount,  receive 
deposits,  or  deal  in  exchange,  but  in  which  should  be 
vested  the  sole  right  of  issuing  notes  payable  on  demand 
for  sums  of  $1  and  upward,  to  a  total  of  £1,000,000. 
Any  issue  in  excess  6f  £1,000,000  was  to  be  undertaken 
solely  to  redeem  notes  or  to  buy  bullion  or  coin.  One- 
fourth  of  the  proposed  issue  was  to  be  covered  by  bullion 
or  coin,  three-fourths  by  government  securities  bought 
by  the  bank  or  paid  into  it.  Part  of  the  interest  could  be 
used  to  meet  expenses  of  management;  the  remainder 
paid  into  the  provincial  revenue.  Corollary  to  these 
features  was  the  proposal  to  prohibit  the  issue  of  notes  by 
banks  after  March  i ,  1 843 ;  such  charters  as  expired  before 
that  date  were  to  be  continued  with  power  to  issue  until 
then,  but  without  it  thereafter.  Banks  whose  corporate 
existence  had  already  been  given  a  longer  term,  were  to 
be  allowed  2%  per  cent  on  their  circulation  yearly,  from 
March  i,  1843,  till  the  expiry  of  their  charters. 

The  chairman  of  the  select  committee  on  banking  and 
currency,  Francis  Hincks,  became  a  ready  convert  to  the 


44 


History     of    Banking    in     Canada 

governor-general's  views,  and  succeeded  in  inducing  his 
committee  to  report  resolutions  looking  to  the  incorpora- 
tion of  the  project  into  the  law  of  the  province.  But 
from  the  assembly's  view,  there  were  altogether  too  many- 
objections  to  the  plan.  One,  as  significant  as  any,  was 
the  circumstance  that  in  any  economy  the  chief  products 
of  which  come  from  the  soil  or  the  forest,  a  currency  of 
fluctuating  volume  is  no  less  desirable  than  wide  seasonal 
variations  in  the  need  for  a  circulating  medium  are  inevi- 
table. From  the  banks'  view,  the  adoption  of  the  plan 
meant  the  loss  of  a  lucrative  source  of  profit,  and  the 
necessity  of  closing  branches  so  as  to  reduce  their  lending 
business  to  smaller  bounds.  In  the  assembly  the  banking 
interest  was  distinctly  strong.  Upon  this  occasion,  it 
was  backed  by  the  borrowing  interests,  or,  at  any  rate,  by 
those  who  looked  to  the  banks  for  loans.  Such  persons 
feared  that  if  the  plan  went  through  it  would  cause  a 
radical  diminution  in  the  available  resources  of  those  who 
had  to  lend.  Of  some  influence,  too,  was  dread  lest  a 
provincial  bank  might  unduly  strengthen  the  executive's 
hand.  Although  the  resolutions  were  proposed  as  a  gov- 
ernment measure,  the  assembly  decided  that  it  was  inex- 
pedient to  establish  a  provincial  bank  of  issue  or  to  issue 
in  any  way  a  paper  currency  on  the  faith  of  the  province. 
It  was  twenty-five  years  before  the  promises  of  the  prov- 
ince were  issued  in  substitution  for  money  systematically 
and  in  any  considerable  volume.  When  these  notes  were 
assumed  by  the  Dominion,  four  years  later  still,  the  chair- 
man of  the  committee  on  banking  and  currency  of  the 
union  was  become  the  confederation's  minister  of  finance. 
The  principles  which  he  then  laid  down  for  the  regulation 

S.  Doc.  332,  61-2 4  45 


National    Monetary     Commission 

of  a  government  issue  of  circulating  paper  were  those 
underlying  the  rejected  measure  of  1841. 

Partly  to  make  up  for  the  revenue  lost  by  refusing  Lord 
Sydenham's  expedient,  a  tax  of  i  per  cent  per  annum  was 
laid  upon  bank  notes  issued  or  circulating  in  the  province. 
This  proved  by  no  means  an  equivalent,  although  in 
1841-42  the  annual  revenue  reached  £9,560  and  in  1845-46 
ran  up  to  £15,899.  Another  general  measure  passed  at 
this  time  extended  to  the  whole  province  the  powers  of 
banks  chartered  by  either  one  of  the  two  from  which  the 
union  was  made  up.  It  was  stipulated  merely  that  notes 
of  Upper  Canada  banks  issued  in  Lower  Canada  should 
bear  date  at  the  place  of  issue  and  be  payable  there  as 
well  as  at  the  principal  office  of  the  bank. 

A  revolution  in  the  colony's  traditional  system  of  bank- 
ing having  been  averted  by  the  decision  not  to  withdraw 
the  issue  privileges  from  chartered  companies,  action  upon 
petitions  for  charter  renewal  and  for  increased  capital 
became  urgent.  Petitions  considerably  to  increase  the 
stocks  of  the  old  Upper  Canada  banks  and  to  incorporate 
two  new  ones  had  found  approval  in  the  legislature  of  that 
province  the  last  session  before  the  union.  The  bills 
passed  to  this  end  fell  before  the  veto  of  the  colonial  office, 
a  veto  prompted  by  the  continuance  in  this  legislation  of 
the  permission  to  issue  notes  for  less  than  £  i  each. 

Apart  from  the  bank  of  issue  proposed  by  Lord  Syden- 
ham and  rejected  by  the  assembly,  three  other  plans  were 
under  discussion.  A  provincial  bank  in  which  both  indi- 
viduals and  government  held  shares  and  to  which  should 
be  granted  an  exclusive  right  to  issue  paper  for  circula- 
tion, while  it  was  allowed  to  make  discounts  and  to  take 

46 


History    of    Banking    in     Canada 

deposits  like  other  banks,  was  believed  to  be  too  monopo- 
listic in  its  tendencies  and  fraught  with  grave  political 
dangers.  The  adoption  of  a  general  banking  law,  under 
which  anyone  complying  with  the  statutory  restrictions 
might  enter  the  business,  was  condemned  by  the  experi- 
ence with  such  measures  in  the  United  States,  by  the 
multiplication  of  small  local  banks  to  which  it  led,  and  by 
the  excessive  issues,  as  well  as  the  weakness  and  deficient 
responsibility  shown  by  such  banks  in  times  of  stress. 
Remained  the  third  plan,  the  continuation  of  the  existing 
system  of  chartered  banks  with  comparatively  large  capi- 
tals, a  system  at  times  liable  to  put  out  too  many  notes, 
and  subject  occasionally  to  undesirable  fluctuations,  but 
nevertheless  to  be  preferred.  The  select  committee  on 
banking  and  currency  accordingly  recommended  the  ex- 
tension of  expiring  bank  charters  under  uniform  regula- 
tions and  restrictions,  most  of  which  had  been  suggested 
by  Her  Majesty's  principal  secretary  of  state  for  the  colo- 
nies (Lord  John  Russell)  with  the  expectation  that  pro- 
vision for  their  observance  should  be  made  in  all  colonial 
bank  charters.  Since  these  regulations,  together  with  the 
supplementary  instructions  transmitted  by  William  Ewart 
Gladstone,  then  colonial  secretary,  in  1846,  contain  the 
elements  of  any  lasting  improvement  or  permanent  prog- 
ress made  by  Canadian  bank  legislation  between  1841  and 
1867,  they  are  worth  repeating  here  in  some  detail: 

"First.  The  amount  of  capital  of  the  company  to  be 
fixed ;  and  the  whole  of  such  fixed  amount  to  be  subscribed 
for  within  a  limited  period,  not  greater  than  eighteen 
months  from  the  date  of  the  charter  or  the  act  of  incor- 
poration. 

47 


National    M  o  n  et  ar  y     Commission 

"Second.  The  bank  not  to  commence  business  until  the 
whole  of  the  capital  is  subscribed  and  a  moiety  at  least 
of  the  subscription  paid  up. 

"  Third.  The  amount  of  the  capital  to  be  paid  up  within 
a  given  time  from  the  date  of  the  charter  or  act  of  incor- 
poration, such  period,  unless  under  particular  circum- 
stances, to  be  not  more  than  two  years. 

"Fourth.  The  debts  and  engagements  of  the  company 
on  promissory  notes  or  otherwise  not  to  exceed  at  any 
time  thrice  the  amount  of  the  paid-up  capital,  with  the 
addition  of  the  amount  of  such  deposits  as  may  be  made 
with  the  company's  establishment  by  individuals  in  specie 
or  government  paper. 

"Fifth.  All  promissory  notes  of  the  company,  whether 
issued  from  the  principal  establishment  or  from  the  branch 
banks,  to  bear  date  at  the  place  of  issue  and  to  be  pay- 
able on  demand  in  specie  at  the  place  of  date. 

"Sixth.  Suspension  of  specie  payments  on  demand  at 
any  of  the  company's  establishments  for  a  given  number 
of  days  (not  in  any  case  exceeding  sixty)  within  any  one 
year,  either  consecutively  or  at  intervals,  to  forfeit  the 
charter. 

"  Seventh.  The  company  shall  not  hold  shares  in  its  own 
stock  nor  make  advances  on  its  own  shares. 

"Eighth.  The  company  shall  not  advance  money  on 
security  of  lands,  or  houses,  or  ships,  or  on  pledge  of  mer- 
chandise, nor  hold  lands  or  houses,  except  for  the  trans- 
action of  its  business;  nor  own  ships  or  be  engaged  in 
trade,  except  as  dealers  in  bullion  or  bills  of  exchange; 
but  shall  confine  its  transactions  to  discounting  commer- 


48 


History     of    Banking    in     Canada 

cial  paper  and  negotiable  securities,  and  other  legitimate 
banking  business. 

"Ninth.  The  dividends  of  the  shareholders  are  to  be 
made  out  of  profits  only  and  not  out  of  the  capital  of  the 
company, 

"Tenth.  The  company  to  make  and  publish  periodical 
statements  of  its  assets  and  liabilities  (half-yearly  or 
yearly),  showing,  under  heads  specified  in  the  annexed 
form,  the  average  of  the  amount  of  its  notes  in  circulation 
and  other  liabilities  at  the  termination  of  each  week  or 
month,  during  the  period  to  which  the  statement  refers, 
and  the  average  amount  of  specie  or  other  assets  that 
were  available  to  meet  the  same.  Copies  of  these  state- 
ments are  to  be  submitted  to  the  provincial  government, 
and  the  company  shall  be  prepared,  if  called  upon,  to 
verify  such  statements  by  the  production,  as  confidential 
documents,  of  the  weekly  or  monthly  balance  sheets  from 
which  the  same  are  compiled;  and  also  to  be  prepared, 
upon  requisition  from  the  lords  commissioners  of  Her 
Majesty's  treasury,  to  furnish  in  like  manner  such  further 
information  respecting  the  state  or  proceedings  of  its 
banking  estabUshments  as  their  lordships  may  see  fit  to 
call  for.  • 

"Eleventh.  No  by-law  of  the  company  shall  be  repug- 
nant to  the  conditions  of  the  charter  or  act  of  incorpora- 
tion or  the  statutes  of  the  province. 

"Twelfth.  *  H=  *  Th^  provisions  of  charters  or 
acts  of  incorporation  should  be  confined  as  far  as  practi- 
cable to  the  special  powers  and  privileges  to  be  conferred 
on  the  company,  and  the  conditions  to  be  observed  by  the 
company,  and  to  such  general  regulations  relating  to  the 


49 


National    M  o  n  et  ar  y     Commission 

nomination  and  power  of  the  directors,  the  institution  of 
by-laws,  or  other  proceedings  of  the  company  as  may  be 
necessary,  with  a  view  to  public  convenience  and  security. 
"Thirteenth.  No  company  shall  be  allowed  to  issue 
promissory  notes  on  demand  for  an  amount  greater  than 
its  paid-up  capital. 

Form  of  return. 

Return  of  the  average  amount  of  the  liabihties  and  assets  of  the  Bank 
of during  the  period  from to 

Promissory  notes  in  circulation  not  bearing  interest £ 

Bills  of  exchange  in  circulation  not  bearing  interest 

Bills  and  notes  in  circulation  bearing  interest 

Balances  due  to  other  banks 

Cash  deposits  not  bearing  interest 

Cash  deposits  bearing  interest 

Total  average  liabilities 

Coin  and  bullion 

Landed  and  other  property  of  the  corporation 

Government  securities 

Promissory  notes  or  bills  of  other  banks 

Balances  due  from  other  banks 

Notes  and  bills  discounted  or  other  debts  due  to  the  corpora- 
tion not  included  under  the  foregoing  heads 

Total  average  assets " 

Subject  to  restrictions  of  this  tenor,  to  the  limitation 
of  the  small-note  issue  to  one-fifth  the  paid-up  capital 
stock,  and  of  directors'  discounts  to  one-third  of  the  total 
discounts,  to  the  prohibitions  of  loans  to  a  foreign  state, 
of  voting  by  alien  shareholders,  or  of  holding  stock  of 
other  banks  except  when  taken  for  bona  fide  debts,  to  the 
injunction  to  cease  discounting  during  suspension,  and 
finally  to  the  double  liability  of  shareholders  in  case  of 
failure,  the  charters  of  all  the  Lower  Canada  banks  were 
continued    to    1862.     For    these    corporations    the    most 

50 


History     of    Banking    in     Canada 

radical  innovation,  of  course,  was  the  double  liability  of 
shareholders,  and  next  to  that,  probably,  the  limitation 
of  note  issues  to  the  amount  of  the  paid-up  capital  stock. 
The  Bank  of  Montreal  was  permitted  to  add  £250,000  to 
its  half  million  of  capital  and  the  City  Bank  £100,000  to 
its  £200,000,  while  the  increase  of  the  Quebec  Bank's 
stock  to  £225,000,  first  planned  in  1837,  was  confirmed 
on  condition  that  the  additional  shares  should  be  fully 
paid  up  by  November  i,  1844.  Further,  a  charter  was 
granted  to  the  Bank  of  the  Niagara  District  at  St.  Cath- 
arines, the  capital  for  this  project  being  fixed  at  £100,000. 
All  the  stock  of  the  new  bank  was  to  be  subscribed  for 
and  half  of  it  paid  in  before  the  bank  began  business.  For 
transgression  of  the  conditions  of  issue  and  for  the  sus- 
pension of  specie  payment  for  more  than  sixty  days  con- 
secutively or  through  the  year,  the  penalty  provided  iu 
all  of  these  acts  was  forfeiture  of  charter. 

The  following  session,  measures  were  passed  again  with 
the  purpose  of  extending  till  1862  the  charters,  and  of 
increasing  the  stock  of  the  Commercial  Bank  of  the 
Midland  District  and  of  the  Bank  of  Upper  Canada. 
Acts  passed  with  this  in  view  in  the  same  session  as  those 
for  the  Lower  Canada  banks  failed  of  the  royal  assent. 
Each  was  permitted  to  call  up  an  additional  £300,000 
within  five  years.  How  limited  at  this  time  was  the 
supply  of  capital  for  banking  enterprise  may  be  judged 
from  the  fact  that  in  1846  the  banks  procured  the  exten- 
sion of  the  term  for  paying  up  the  new  stock  to  1850, 
while  the  Bank  of  the  Niagara  District,  even  with  the 
permission  it  shared  with  the  other  Canada  West  banks 
to  set  aside  a  proportion  of  "English  stock"  transferable 

51 


National    Monetary     Commission 

in  London,   never  found   the  capital  required  to  begin 
business. 

Not  all  of  the  regulations  framed  by  the  British  lords 
of  the  treasury  in  1840,  as  norms  for  colonial  bank  legis- 
lation, were  adopted  by  the  Canadian  committee  on  bank- 
ing and  currency.  The  document  received  from  the 
colonial  office  carried  a  prohibition  of  notes  for  less  than 
£1  each.  This  both  the  committee  of  1841  and  the  leg- 
islature they  advised  had  ignored.  Working  as  they 
were,  with  an  arbitrary  money  of  account,  the  Canadians 
had  tolerably  sound  reasons  for  retaining  the  dollar 
notes.  The  only  coins  of  nearly  equivalent  value  were 
the  Mexican,  Spanish,  and  South  American  dollars,  and 
those  coined  in  the  United  States.  In  practice,  Canada 
was  thrown  almost  altogether  upon  the  Philadelphia  Mint 
for  her  supply  of  silver  coin.  In  practice,  too,  so  far  as 
can  be  judged  from  examples  of  the  early  issues  which 
have  been  preserved,  notes  even  for  £1  currency  were  so 
engraved  as  to  have  the  $4  value  considerably  the  more 
conspicuous.  The  pound  sterling  was  ordinarily  rated  at 
£1  4s.  4d.  currency.  The  British  shilling  had  long  passed 
for  IS.  3d.  currency  in  Upper  Canada;  in  the  lower  prov- 
ince it  was  rated  at  but  is.  id.  The  important  trade 
relations  between  Canada  and  the  United  States,  and  the 
considerable  note  circulation  the  Canadian  banks  enjoyed 
in  communities  just  beyond  their  southern  borders,  made 
it  essential  that,  in  some  respects  at  least,  the  monetary 
units  of  the  two  countries  should  be  alike.  The  famil- 
iarity of  the  people  with  the  decimal  system  and  well-nigh 
every  consideration  of  convenience  in  business  or  ease  in 
replenishing   stores    of   specie    pointed    to    the   eventual 

52 


History     of    Banking    in     Canada 

assimilation  of  the  Canadian  currency  system  to  that  of 
the  United  States.  Inasmuch  as  silver  was  underrated 
by  the  American  legislation  of  1834,  the  silver  dollar  had 
become  worth  intrinsically  5s.  id.,  Halifax  currency. 
The  new  eagle,  however,  had  been  valued  by  Canadians 
at  £2  I  OS.  and  was  the  only  important  coin  of  any  minting 
rated  at  even  multiples  of  5s.  There  arose  in  this  circum- 
stance, therefore,  a  further  reason  for  the  Canadian 
circulation  of  dollar  notes. 

The  imperial  government,  guided  still  by  the  doctrine 
that  the  smaller  exchanges  should  be  made  in  coin,  were 
anxious  that  the  colonies  should  enjoy  the  benefits  of  a 
currency  founded  on  a  sound  and  metallic  basis,  and  avoid 
the  evils  of  a  note  circulation  of  small  denominations, 
which  could  only  subsist  by  the  exclusion  of  specie.  But 
they  forbore  to  recommend  adverse  action  upon  the  bank 
charters  on  the  grounds  that  the  measures  had  been  fully 
considered  by  the  legislature  and  governor-general  and 
recommended  by  both;  that  a  refusal  to  confirm  them 
might  cause  embarrassment,  and  that  the  legislature  had 
reserved  the  power  of  regulating  the  note  issue  in  the 
future.  When  the  act  to  incorporate  La  Banque  des 
Marchands  was  presented  for  the  royal  assent,  in  1846, 
and  the  obnoxious  provision  for  a  limited  issue  of  dollar 
notes  was  found  in  the  act,  the  colonial  office  sent  the 
charter  back  to  the  governor-general  with  an  energetic 
renewal  of  the  criticism  of  1842,  but  with  a  collateral 
promise  that,  if  the  executive  council  thought  a  change 
inexpedient,  assent  would  not  be  withheld.  The  Canadians 
stood  by  their  dollar  notes  and  the  charter  became  effect- 
ive by  proclamation  early  in  1848,  although  none  of  the 


53 


National     M on  et ary     Commission 

privileges  accorded  by  this  particular  measure  was  ever 
used. 

While  the  revival  after  the  crisis  of  1837  had  been  slow 
in  beginning,  marked  and  general  improvement  in  com- 
mercial conditions  and  a  lively  demand  for  capital 
appeared  in  1844.  The  movement  took  the  usual  course 
of  an  economic  expansion,  although  in  Canada  the  devel- 
opment along  speculative  lines  was  carried  to  no  such 
extremes  as  in  the  British  railway  mania.  Still,  shrewd 
observers  complained  of  excessive  importations  in  1847, 
and  viewed  the  great  increase  of  staple  exports  as  some- 
thing most  unlikely  to  endure.  Curiously  enough,  unless 
the  circumstance  is  to  be  explained  by  the  dearth  of  free 
capital  seeking  investment  and  by  the  difficulty  older 
banks  found  in  obtaining  subscription  and  payment  for 
new  shares,  there  was  no  widespread  agitation  for  new 
bank  charters.  The  French  partnership  in  commendam, 
Viger,  Dewitt  et  Cie.,  was  granted  a  charter,  it  is  true,  in 
1844,  under  the  style  of  the  Banque  du  Peuple,  and  with 
an  authorized  capital  of  £200,000.  The  act  recognized 
the  unlimited  liability  of  the  12  principal  partners  and 
the  limitation  of  the  liability  of  the  other  partners  or 
commanditaires  to  the  amount  of  their  subscriptions. 
Apart  from  the  Banque  du  Peuple  and  the  Banque  des 
Merchands  already  cited,  no  new  bank  was  authorized 
until  the  session  of  1847,  and  this,  the  District  Bank  of 
Quebec,  failed  to  get  the  money  wherewith  to  start  busi- 
ness. In  1847,  however,  bills  passed  the  legislature  per- 
mitting additions,  £650,000  in  all,  to  the  capitals*  of  the 
Quebec  and  the  City  banks  and  to  that  of  the  Bank  of 
Montreal. 

54 


History     of    Banking    in     Canada 

The  brunt  of  the  crash  in  England,  so  far  as  it  alTected 
the  North  American  possessions,  fell  upon  Lower  Canada 
or  Canada  East,  for  it  was  the  merchants  in  Montreal  and 
Quebec  whose  connection  with  Britain  was  the  closest,  by 
reason  of  their  dominance  in  the  export  trade.  Commer- 
cial failures  in  number,  a  great  falling  off  in  overseas 
shipments  of  timber,  wheat,  and  produce,  heavy  reduc- 
tions of  discounts  by  the  banks,  and  a  sharp  contraction 
in  their  circulation  made  1 848  a  hard  year.  How  severely 
the  banks  were  affected  appears  in  the  losses  written  off, 
and  the  reductions  of  capital  effected  shortly  after. 
More  than  £206,000,  most  of  it  in  Canada  East,  was  writ- 
ten off  capitals  and  rests  in  1848-49,  and  dividends  gen- 
erally reduced  by  one-fifth  to  two-fifths  from  the  rates 
paid  before  the  crisis.  Some  of  these  shrinkages,  beyond 
question,  represented  part  of  the  losses  suffered  by  Can- 
ada at  the  beginning  of  Britain's  fiscal  policy  of  free  trade, 
and  the  consequent  abolition  of  preferential  advantages 
in  the  British  customs  for  Canada's  lumber  and  timber, 
wheat  and  flour. 

So  great  was  the  government's  need -in  1848,  and  so 
hopeless  the  borrowing  of  money  abroad,  that  resort  was 
had  to  the  issue  of  debentures  upon  the  credit  of  the 
province.  A  total  issue  of  £125,000  was  authorized,  but 
nothing  said  as  to  form,  amount,  or  due  dates  of  the  prom- 
ises. Interest,  it  was  stipulated,  should  not  exceed  6  per 
cent.  The  government  prepared  the  debentures  as  notes 
of  the  form  and  appearance  of  bank  notes  for  sums  as 
low  as  $10,  made  them  payable  in  one  year  with  interest 
at  6  per  cent,  and  receivable  for  public  dues.  A  step  not 
contemplated    by  the  act  was  the   reissue  of  the  paper 

55 


National    Monetary     Commission 

after  it  had  once  been  paid  into  the  public  chest.  For 
this,  the  government  took  indemnity  the  fohowing  year, 
and  at  the  same  time  obtained  authority  for  a  new  issue 
in  debentures  for  less  than  £io,  payable  on  demand  or 
after  any  date,  with  or  without  interest.  As  it  happened, 
the  authority  thus  granted  was  not  used,  and  the  deben- 
tures of  1848  soon  disappeared  from  circulation. 

For  the  oppressive  sequels  of  the  difficulties  of  1847-48, 
rather  an  unjust  proportion  of  blame  was  laid  at  the  doors 
of  the  banks.  In  point  of  fact,  much  of  the  security  now 
offered  them  was  inferior,  the  banks'  resources  were  more 
or  less  crippled,  the  volume  of  business  legitimately  in 
need  of  credit  had  fallen  off,  and  the  prices  of  Canadian 
exports  could  not  well  be  expected  to  rise  until  recovery 
from  financial  and  political  disturbance  across  the  ocean 
permitted  consumption  there  to  return  to  something 
nearer  its  normal  volume.  Those  most  affected  by  the 
situation  in  Canada,  however,  w^ere  disposed  to  look  for 
explanations  nearer  to  hand,  to  ascribe  their  embarrass- 
ments to  agencies  actuated  by  a  will.  Hence  arose  varied 
complaints  of  the  facilities  accorded  by  the  chartered 
banks;  hence  there  started  anew  a  movement  for  the 
provision  of  banking  facilities  by  the  geographical  plan, 
a  bank,  that  is,  for  each  district  or  for  every  city  and  town. 

The  government  of  the  day  included  among  its  members 
a  number  of  some-time  advocates  of  the  Upper  Canada 
scheme  of  1835  for  a  provincial  bank;  others  had  favored 
a  general  banking  law;  others  yet,  among  them  the 
finance  minister,  Francis  Hincks,  had  supported  Lord 
Sydenham's  project  for  the  monopolization  of  the  issue 
privilege  by  the  state.     For  the  time  being,  the  credit  of 

56 


History     of    Banking    in     Canada 

the  province  was  none  too  good;  neither  was  the  govern- 
ment's command  of  funds  all  that  could  be  desired. 
Finally,  across  the  southern  border,  the  great  State  of 
New  York  had  abandoned  the  plan  of  chartered  banks 
empowered  to  issue  notes  against  their  general  credit,  and 
as  early  as  1838  turned  over  to  a  system  of  note  regula- 
tion, under  which  paper  could  be  issued  for  circulation 
only  against  specially  pledged  securities  lodged  with 
officers  of  the  State. 

By  dint  of  various  amendments  to  the  original  legisla- 
tion, devised  as  the  defects  of  that  measure  appeared 
from  time  to  time,  the  free-banking  law  of  New  York 
had  become  a  practicable  system  of  regulation.  That 
under  it  an  economical  banking  organization  was  possible, 
or  that  it  possessed  advantages  equal  to  these  of  other 
carefully  thought-out  schemes  of  banking  law,  would  be 
less  easy  offhand  to  concede  and  harder  still  to  prove. 
Neither  is  it  in  the  least  clear  that  the  Canadian  govern- 
ment was  acting  on  the  precept  "like  symptoms,  like 
cure."  Indeed,  the  experience  prior  to  1847  ought  to 
have  shown  that  what  the  country  needed  was  not  more 
banks,  but  more  capital  to  be  put  at  the  disposal  of  the 
banks  in  the  shape  of  deposits  or  stock.  Furthermore, 
the  strength  of  the  individuals  of  the  Canadian  system, 
their  comparatively  small  number,  and  the  prudent 
fashion  in  which  they  had  handled  their  affairs,  no  less 
than  the  way  charters  had  been  granted,  left  no  room 
for  such  reproach  against  these  banks  as  lay  against  all 
too  many  of  the  chartered  or  safety-fund  banks  of  New 
York  and  the  charter  mongering  through  which  they 
obtained  their  rights. 

57 


National    Monetary     C  o  mmis  s  i  on 

If  they  had  any,  these  considerations  had  no  sufficient 
weight  against  the  prospect  of  bettering  the  market  for 
provincial  funds,  or  the  possibihty  that  legislation  of  a 
new  sort  would  still  the  popular  discontent  with  the 
province's  banks.  The  government  brought  down  in 
June,  1850,  their  plan  for  bond-secured  notes  in  "a  bill 
to  establish  freedom  of  banking  in  this  province  and  for 
other  purposes  relative  to  banks  and  banking,"  which 
was  avowedly  nothing  more  or  less  than  a  copy  of  the 
free-banking  act  of  the  State  of  New  York.  The  bill  was 
duly  passed  by  both  the  assembly  and  executive  council, 
and  in  August  received  the  royal  assent. 

In  brief,  this  law  confined  the  issue  of  notes  intended  for 
circulation  to  chartered  banks  or  persons  thereto  author- 
ized by  the  act.  None  might  be  for  less  than  5s.  Indi- 
viduals, general  partners,  or  joint-stock  companies  might 
organize  banks.  The  least  capital  permitted  was  £25,000. 
Any  bank  formed  under  the  act  might  have  an  office  in 
but  one  place  and  in  but  one  city,  town,  or  village.  Arti- 
cles of  agreement  in  notarial  form,  showing  the  name, 
place  of  business,  capital  stock,  number  of  shares,  names, 
and  residences  of  shareholders,  and  time  when  the  venture 
was  to  begin  and  end  were  made  the  basis  of  organization. 
Filing  such  articles  in  designated  courts  of  record  incor- 
porated the  bank  and  limited  the  liability  of  share- 
holders to  double  their  subscriptions  to  the  stock — to  the 
original  subscription,  that  is,  and  to  an  equal  amount  in 
addition.  As  in  New  York,  each  bank  was  required  to 
keep  in  good  faith  an  office  of  discount  and  deposit, 
to  keep  on  view  a  list  of  its  shareholders  or  partners^ 
to  make  half-yearly  returns  to  the  government,  and    to 

58 


History     of    Banking    in     Canada 

submit  to  government  inspection  at  the  discretion  of  the 
government.  LiabiUties  in  excess  of  thrice  the  paid-up 
stock  were  forbidden  the  banks. 

Banks  thus  organized  could  issue  notes  only  after  the 
deposit  with  the  receiver-general  of  the  province  of  pro- 
vincial securities  for  not  less  than  £25,000  ($100,000)  par 
value,  as  pledge  for  the  ultimate  redemption  of  the  notes. 
Interest  would  be  paid  to  the  pledgor  as  it  accrued.  In 
return  for  the  bonds,  the  receiver-general  was  authorized 
to  turn  over  to  the  bank  an  equal  amount  of  registered 
notes,  printed  on  paper  selected  by  the  government  from 
plates  furnished  by  the  bank.  Such  notes  properly 
signed  became  notes  of  the  bank,  payable  in  specie  on 
demand  at  the  bank's  office.  So  long  as  redemption  was 
maintained,  the  notes  of  a  free  bank  were  receivable  for 
customs  and  other  dues  to  the  government.  Chartered 
banks  were  permitted  to  surrender  circulation  rights  and 
obtain  secured  notes  upon  deposit  of  securities  equal  in 
par  value  to  the  sum  desired.  Upon  secured  notes  the 
province  levied  no  tax.  Additional  securities  might  be 
deposited  from  time  to  time,  or  securities  withdrawn,  pro- 
vided the  sums  so  withdrawn  were  not  less  than  £5,000, 
and  the  nominal  deposit  of  £25,000  were  not  impaired. 

Should  a  bank  suspend  specie  payment  and  fail  to  re- 
deem, with  interest  at  6  per  cent,  its  notes  within  ten 
days  after  the  requisition  issued  by  the  inspector-general 
upon  receipt  of  protested  paper,  that  officer  was  charged 
with  the  duty  of  closing  the  bank  and  winding  up  its 
affairs,  in  case  no  valid  excuse  was  offered  for  the  default. 
The  first  step  in  liquidation  was  to  pay  off  the  notes  from 
the    proceeds    of    pledged    securities.     Remaining    pro- 


59 


National     Monetary     Commission 

ceeds  were  then  to  be  applied  to  other  debts  of  the  bank; 
but  if  the  securities  sold  should  not  fetch  enough  to  meet 
the  notes,  other  assets  were  to  be  appHed  to  the  purpose. 
In  other  words,  note  holders  were  given  a  prior  lien  upon 
all  the  estate  of  the  issuing  bank. 

Partly  in  deference  to  criticism  from  Downing  Street, 
the  free-bank  act  w^as  amended  the  following  year  by  the 
requirement  of  monthly  instead  of  half-yearly  returns. 
The  obligation  to  maintain  specie  reserves  at  not  less 
than  one-third  of  the  notes  outstanding,  also  suggested 
by  the  lords  of  the  treasury,  was  not  imposed.  Rather 
than  make  the  imported  fashion  of  banking  more  difficult, 
the  legislature  sought  to  attract  the  chartered  banks  to 
the  plan.  An  act  was  passed  exempting  from  half  the  tax 
on  circulation  for  the  three  years  next  following  such  banks 
as  would  restrict  their  circulation  forthwith  to  the  highest 
amount  shown  in  their  last  return,  and  at  the  end  of 
three  years  to  three-quarters  the  average  of  1849  and 
1850.  After  the  first  three  years,  banks  thus  restricting 
their  issue  were  to  be  exempt  altogether  from  the  circula- 
tion tax,  while  during  the  whole  term  of  the  restriction 
they  might  issue  additional  notes  to  the  amount  which 
they  might  hold  of  coin,  bullion,  and  debentures  of  the 
province.  Chartered  banks  were  not  required  to  deposit 
with  the  receiver-general  securities  against  which  they 
might  elect  to  issue  such  notes.  There  was,  to  be  sure, 
provision  made  that  in  case  of  failure  the  proceeds  of 
bonds  so  held  should  be  used  solely  for  paying  the  notes, 
but  the  fact  remained  that  here  was  an  earnest  effort 
making  to  extend  the  circulation  of  bond-secured  notes 
against  which  the  legislature  was  providing  for  no  special 

60 


History     of    Banking    in     Canada 

deposits  of  bonds.  Two  years  later  (1853)  the  method 
of  reckoning  the  tax  on  circulation  was  changed  so  that 
I  per  cent  was  collected  from  the  chartered  banks  upon 
merely  the  excess  of  issue  over  securities  and  specie  on 
hand.  Chartered  banks  were  also  permitted  by  this  act, 
this  time  also  without  special  deposit  of  the  securities, 
to  issue  their  ordinary  unsecured  notes  for  so  much  in 
excess  of  their  paid-up  capital  stock  as  they  had  of  specie , 
bullion,  or  debentures  of  the  province  on  hand. 

Unless  it  were  merely  a  fiscal  purpose,  the  motive  of 
these  amendatory  measures  would  be  hard  to  conceive. 
The  concession  to  the  chartered  banks  certainly  involved 
a  complete  negation  of  the  security  principle  of  the  orig- 
inal law,  while  the  attractions  devised  to  induce  larger 
holdings  of  debentures  were  altogether  too  slight  to  serve 
that  end.  Had  the  government  been  determined  to  force 
their  free  banking  scheme  to  general  adoption  through 
the  province,  a  much  better  plan  than  anything  tried 
would  have  been  to  tax  the  chartered  banks  out  of  exist- 
ence, or  to  refuse,  as  the  legislature  of  New  York  had 
refused,  longer  to  continue  their  powers. 

As  a  means  to  the  diffusion  of  banking  facilities  the  act 
to  establish  freedom  of  banking  did  not  prove  a  success. 
The  chief  beneficiary  was  the  Bank  of  British  North 
America,  whose  managers  were  enabled  by  this  measure 
to  evade,  legally  enough,  the  clause  in  the  bank's  royal 
charter  prohibiting  notes  for  less  than  £1.  Even  three 
years  and  a  half  after  the  act  had  become  law,  in  Decem- 
ber, 1854,  there  were  but  four  banks  working  under  its  pro- 
visions. Of  the  total  bond  deposits,  £287,125,  that  of  the 
British  Bank  stood  for  £162,125.     The  three  free  banks 

S.  Doc.  332,  Ci-2 s  5i 


National    Monetary     Commission 

proper  had  received  notes  of  a  value  of  £124,499  and  had 
£106,030  outstanding.  The  largest  amount  of  notes 
taken  out  under  the  act  was  reported  late  in  1855,  £309,- 
549;  after  that  there  was  a  steady  diminution.  The  free 
banks  first  organized,  three  of  them,  sought  and  obtained 
charters  in  1855.  After  that  they  retired  as  fast  as  might 
be  their  issues  of  bond-secm"ed  notes.  The  only  other 
two  companies  organized  as  free  banks  began  in  their 
turn  to  retire  their  paper  and  withdraw  securities  as  early 
as  1858,  and  by  December,  1861,  the  free-bank  paper 
other  than  that  of  the  British  Bank  in  the  hands  of  the 
public  had  fallen  to  $25,440.  Not  until  1866,  however, 
was  the  law  finally  repealed. 

The  reasons  for  the  failure  of  this  experiment  are  not 
far  to  seek.  William  Hamilton  Merritt,  who  presented 
the  measure  to  the  assembly  in  1850  and  believed  to  the 
end  that  it  was  "the  best  system  adopted  in  any  country 
from  the  beginning  of  the  world  to  the  present  time," 
summed  the  explanation  up  in  certain  observations  he 
offered  to  the  legislature  in  1859.  "Why  did  not  other 
banking  companies  seek  charters  under  the  free  banking 
act?  Simply  because  they  made  more  money  under  the 
old  system."  This  was  no  more  nor  less  than  the  truth. 
Once  capital  enough  to  start  a  free  bank  was  brought 
together  in  any  community,  it  was  necessary  forthwith  to 
send  that  capital  out  of  the  community,  in  order  to  buy 
the  bonds  required  as  an  initial  deposit  against  notes. 
The  notes  came  back,  to  be  sure,  but  barring  such  small 
interest  as  they  earned  on  the  bonds,  the  proprietors  were 
in  exactly  the  same  case  with  respect  to  the  amount  of 
loanable   funds   at   their   disposal   as   they   were   before. 

62 


History     of    Banking    in     C an  ad 


a 


They  were  worse  off  in  this,  that  they  were  under  obhga- 
tion  thenceforward  to  keep  an  office  for  discount  and  de- 
posit and  to  be  ready  at  all  times  to  pay  in  specie  all 
notes  presented  for  pa3^ment. 

In  such  circumstances,  it  would  be  difficult  if  not  im- 
possible to  keep  the  whole  of  any  one  bank's  note  issue 
in  the  hands  of  the  public.  Contrast  now  the  position  of 
a  chartered  bank.  Issuing  notes  against  its  general 
credit,  it  would  have  the  control  both  of  its  original  capi- 
tal and  of  the  resources  arising  from  whatever  proportion 
of  its  authorized  note  issue  it  could  keep  in  circulation. 
Upon  both  these  components  of  its  loan  fund  it  could 
earn  the  current  local  yield  of  money  invested  in  dis- 
counts and  whatever  additional  gain  was  incidental  to 
banking  operations  in  its  territory.  The  commimity,  on 
the  other  hand,  would  have  the  advantage  not  only  of 
the  bank's  original  capital,  or  whatever  part  thereof 
might  be  lent  safely,  but  also  of  the  resources  derived 
from  circulation.  The  chartered  bank  was  thus  the  more 
efficient  instrument,  whether  for  the  advantage  of  its  pro- 
prietors, or  for  the  increase  of  banking  accommodation  in 
the  community  where  it  worked.  The  most  significant  of 
any  acknowledgment  of  this  principle  is  probably  to  be 
found  in  the  clause  of  the  statutes  of  the  United  States 
which  imposes  upon  the  notes  of  state  banks  a  tax  of  lo 
per  cent  each  time  they  are  paid  out. 

The  failure  of  bond-secured  issues  either  to  further  pros- 
perity or  to  provide  the  capital  needed  for  the  colony's 
development  became  obvious  early  in  the  history  of  the 
act.  At  the  same  time  need  for  additional  capital  was 
recognized  and  provision  for  it  urged  by  those  best  quali- 

63 


National     Monetary     Commission 

fied  of  any,  perhaps,  to  judge  the  market  position.  In 
1854,  existing  chartered  banks  petitioned  for  authority  to 
increase  their  capital  stocks.  To  look  for  additional  cap- 
ital in  Canada  was  reckoned  comparatively  hopeless;  to 
obtain  it  abroad  the  opportunity  for  investment  would 
have  to  be  such  as  was  preferred  abroad.  The  English 
capitalist  was  unlikely  to  be  attracted  to  small  or  private 
banking  ventures,  whereas  the  stocks  of  the  large  char- 
tered banks  had  been  known  for  years  as  safe  investments. 
Force  was  lent  to  this  argument  by  the  promptness  with 
which  the  Bank  of  Montreal  had  obtained  subscription 
and  partial  payment  of  a  quarter  million  addition  to  its 
capital  authorized  in  1852. 

The  policy  indicated  was  adopted  by  the  legislature  and 
provision  made  for  increasing  the  capital  of  existing  banks. 
Altogether  the  addition  of  £2,010,000  was  permitted  to 
the  stocks  of  the  six  banks  who  applied.  In  the  case  of 
the  largest  bank  the  directors'  discounts  were  limited  to 
one-tenth  of  the  whole.  Payment  of  dividends  and  trans- 
fer of  shares  in  Great  Britain  were  permitted  in  most 
of  the  acts,  and  in  every  one  of  them  was  included  a  new 
condition,  fulfillment  of  which  was  obligatory  if  the  bank 
increased  its  stock.  In  that  case,  10  per  cent  of  the  whole 
paid-up  capital  had  to  be  invested  in  debentures  of  the 
province  or  of  the  consolidated  municipal  loan  fund. 
Although  the  majority  of  the  charters  had  some  eight 
years  to  run,  the  corporate  existence  of  the  banks  was 
continued  to  January  i,  1870,  and  the  end  of  the  next 
session  of  parliament. 

Continuation  of  the  established  and  so  far  fairly  success- 
ful scheme  of  regulation  thus  decided,  the  legislature  pro- 

64 


History     of    Banking     in     Canada 

ceededin  1855  to  pass  new  charters  for  three  of  the  com- 
panies first  started  as  free  banks  and  to  three  wholly  new 
ventures,  the  total  capital  authorized  amounting  to 
£1 ,450,000.  In  the  next  two  sessions  five  additional  char- 
ters, all  to  new  banks,  were  passed,  authorizing  a  further 
increase  of  £2,466,666  in  the  banking  capital  of  the  prov- 
ince. All  in  all,  the  new  policy  which  followed  the  aban- 
donment of  the  free  banking  scheme  had  permitted  in  four 
years  the  addition  of  £5,926,000  to  the  authorized  stock 
of  Canadian  chartered  banks — a  sum  more  than  twice 
their  paid-up  capital  in  1851,  and  within  a  few  thousand 
pounds  as  much  as  their  paid-up  capital  in  1861. 

Few  new  features  of  a  distinctly  restrictive  character 
appeared  in  any  of  the  new  charters  passed  at  this  time,  or 
in  the  acts  consolidating  the  legislation  pertaining  to  some 
of  the  older  banks,  which  were  obtained  in  behalf  of  these 
corporations  in  1856  and  1858.  One  of  the  more  notable 
was  the  requirement  of  monthly  statements  of  actual  in- 
stead of  half-yearly  statements  of  average  condition,  which 
first  appeared  in  the  acts  of  1854,  extending  the  capital 
of  the  older  banks.  Another  innovation  was  the  restric- 
tion of  directors'  discounts  or  discounts  of  firms  in  which 
they  were  members  to  one-twentieth  of  the  bank's  total 
discounts,  loans,  or  advances.  For  the  voting  scale  cus- 
tomary since  181 7  there  was  substituted,  in  the  new  char- 
ters, the  rule  of  one  vote  for  each  share.  In  respect  of 
provisions  calculated  to  insure  the  payment  of  a  good  pro- 
portion of  the  subscribed  capital  the  new  charters  were 
deficient,  so  much  so  that  if  it  wished  an  unscrupulous 
board  might  put  out  £35,000  in  notes,  even  £110,000, 
upon  scarcely  more  capital  than  the  £10,000  needed  at  the 

65 


National     Monetary     Commission 

outset  for  the  purchase  of  provincial  debentures .  Although 
the  payment  of  £25,000  upon  the  subscribed  capital  was 
the  least  amount  upon  which  a  bank  was  nominally  per- 
mitted to  begin  business,  no  way  was  provided  to  make 
certain  the  sum  was  in  hand.  Charters,  moreover,  were 
granted  in  some  cases  without  sufficient  inquiry  into  the 
antecedent  character  and  responsibility  of  the  petitioners, 
with  results  injurious  as  well  to  the  standing  of  the  Cana- 
dian banks  generally  as  to  no  small  groups  of  .wild-cat 
promoters'  dupes. 

All  this  expansion  of  old  banks  or  rapid  multiplication 
of  new  ones  forms,  of  course,  but  one  aspect  of  the  tre- 
mendous economic  advance  which  the  province  was  mak- 
ing between  1850  and  1856.  A  rising  tide  of  immigra- 
tion,  great  expenditures  upon  public  works,  a  succession 
of  excellent  harvests,  high  prices  for  produce,  partly  as 
the  result  of  the  Crimean  war,  cheaper  freight  rates  to  and 
from  Canadian  ports  following  the  repeal  of  the  British 
navigation  laws,  the  construction  of  some  1,500  miles  of 
railway  between  1852  and  1858,  and,  finally,  the  reciprocity 
treaty  of  1854,  which  opened  up  the  markets  of  the  United 
States  to  a  trade  of  highly  lucrative  returns,  combined  to 
lift  the  province  to  a  pitch  of  prosperity  hitherto  unknown. 
Upon  railways  and  canals  alone  it  was  reckoned  some 
$60,000,000  was  spent  in  the  six  years  following  1850,  the 
bulk  of  the  money  coming  from  Britain. 

Along  with  all  this — and  much  of  it.  indeed  most  of  it, 
meant  sound  and  lasting  progress — there  was  a  deal  of  the 
unsound.  Importations,  as  might  be  expected,  rose  to 
extravagant  volumes  and  land  to  artificial  and  inflated 
values.     That  speculation,  originating  in  a  genuine  and 

66 


History     of    Banking    in     Canada 

justifiable  demand  for  more  agricultural  land,  soon  turned 
into  a  frenzied  trade  in  wild  or  unimproved  tracts,  in  which 
many  of  the  farmers,  then  selling  produce  for  cash  and 
buying  supplies  on  credit,  locked  up  an  undue  proportion 
of  their  means.  City  and  town  holdings  also  changed 
hands  at  prices  which  a  subsequent  generation  would 
scarcely  credit.  To  cite  an  extreme  example — it  is  of  rec- 
ord that  near  one  town  of  Canada  West  a  property  which 
sold  in  1854  for  $48,000  went  begging  fifty  years  later  for 
$8,000. 

Following  the  poor  crop  of  1857,  low  grain  prices,  and 
heavy  reduction  of  the  inflow  of  British  funds,  came  the 
financial  crisis  in  Great  Britain  and  the  United  States. 
Thrown  as  they  were  almost  entirely  upon  capital  and  cir- 
culation for  their  lending  resources,  and  confronted  at  this 
juncture  by  the  prospect  of  large  demands  for  note  redemp- 
tion, the  Canadian  banks  ceased  to  discount.  They  either 
could  not  or  would  not  begin  again  in  time  to  furnish  funds 
wherewith  to  move  the  crops.  Within  the  year  their  cir- 
culation had  fallen  to  two-thirds  its  volume  in  1856;  dis- 
counts, of  course,  were  cut  down  in  corresponding  degree. 
Failure  of  the  usual  means  for  getting  the  crops  to  market 
tied  up  the  milling  industry,  threw  many  out  of  employ- 
ment, prevented  the  customary  settlement  of  farmers* 
debts,  and,  as  a  consequence  of  this,  interrupted  the  normal 
course  of  liquidation  in  all  channels  of  trade.  Without 
their  usual  advances,  divers  local  industries  were  forced  to 
run  short  time  or  not  at  all,  while  throughout  the  province, 
but  more  especially  in  the  western  part,  many  failures  oc- 
curred and  much  distress  followed  the  abrupt  fall  in  the 
land  values.     The  year  1858  was  one  of  deep  depression,  a 

67 


National    Monetary     Commission 

depression  from  which  there  was  only  the  beginning  of  re- 
covery in  1859. 

No  Canadian  bank  failed  at  the  height  of  the  crisis  of 
1857  or  immediately  thereafter.  Most  of  the  banks  were 
apprehensive  of  trouble  early  in  the  year  and  proceeded  as 
best  they  might  to  set  their  houses  in  order  against  the 
time  of  collapse.  Even  if  none  other  were  present,  a  strong 
motive  for  caution  was  provided  in  the  constant  pressure 
on  each  for  the  redemption  of  its  notes  exerted  by  practi- 
cally all  the  other  banks,  and  the  consequent  necessity  of 
keeping  well  supplied  with  specie.  At  this  juncture,  as  in 
many  a  preceding  time  of  danger,  this  incidental  effect  of 
a  competitive  issue  of  circulation  against  general  assets 
served  as  the  most  powerful  influence  for  careful  manage- 
ment, the  most  efficient  deterrent  from  reckless  ventures, 
of  any  probably,  to  the  action  of  which  the  Canadian  banks 
were  exposed.  Unfortunately  the  factor  was  of  the  great- 
est force,  not  in  the  early  and  middle  but  rather  in  the 
final  stages  of  an  expansion.  When,  therefore,  it  did  de- 
velop its  full  effect  and  the  banks  changed  their  policy  ac- 
cordingly, a  deal  of  popular  complaint,  not  to  say  clamor, 
was  provoked  by  what  the  critics  called  the  niggardly 
timidity  and  selfish  indifference  of  the  banks.  Discontent 
with  the  currency  or  rather  with  the  way  the  banks  fur- 
nished currency,  whether  or  no  this  discontent  was  wholly 
justifiable,  together  with  the  exigencies  of  the  provincial 
treasury,  furnished  the  main  promptings  for  the  plans  for 
a  different  sort  of  circulating  medium  which  were  brought 
forward  in  i860. 

That  the  banks  had  not  come  through  unscathed  was 
revealed  by  the  losses  acknowledged  and  the  appropria- 

68 


History     of    Banking     i'n     Canada 

tions  made  for  bad  and  doubtful  debts  in  1858  and  1859. 
Just  to  what  degree  certain  of  the  older  companies  had  be- 
come involved  in  the  land  and  railway  ventures  did  not 
come  out  until  some  years  later.  Meanwhile  enough  faith 
in  the  country's  future  remained  among  some  capitalists 
to  prompt  applications  for  the  incorporation  of  yet  more 
banks.  The  legislature  was  complaisant,  and  in  1858  char- 
tered the  proprietary  of  the  projected  Bank  of  Canada 
(afterwards  the  Canadian  Bank  of  Commerce).  Three 
charters  followed  in  1859,  two  more  in  1861,  one  in  1864, 
three  in  1865,  and  yet  two  in  1866.  The  new  capital  thus 
authorized  was  no  less  than  $16,460,000,  much  more  than 
was  actually  added  for  many  years  to  come.^' 

Only  seven  of  the  banks  ever  started.  Some  of  these, 
like  other  banks  chartered  prior  to  1858,  found  it  neces- 
sary to  procure  from  a  lenient  parliament  an  extension  of 
the  time  first  set  for  forfeiture  for  nonuser.  None  of  the 
twelve  charters  passed  1 858-1 866  authorized  less,  in  the 
first  instance,  than  $1,000,000  of  capital  stock,  of  which  at 
least  $400,000  was  to  be  subscribed  and  $100,000  paid  in 
(in  a  number  of  cases,  "actually  deposited  in  specie  with 
some  existing  chartered  bank")  before  the  beginning  of 
business.  In  three  instances  the  capital  first  authorized 
was  reduced  to  $400,000,  while  in  other  cases  the  repeated 
extensions  of  time  for  payment  brought  about  a  practical 
negation  of  any  effort  to  safeguard  the  public  by  insisting 

a  Under  legislation  which  became  effective  January  i,  1858,  Halifax 
currency  ceased  altogether  to  be  the  official  or  statutory  money  of  account. 
Thereafter  Canadians  reckoned  in  dollars  and  cents  by  law  as  they  had  for 
decades  theretofore  in  fact.  The  British  sovereign  waV  continued  as  a 
legal  tender  for  $4.8623  and  the  American  eagle  coined  after  1834  as  legal 
tender  for  $10 


69 


National     Monetary     Commission 

that  new  ventures  should  be  equipped  with  a  large  paid-up 
stock. 

Just  as  the  first  signs  of  rally  from  the  depression  of 
1858  became  evident  the  provincial  minister  of  finance, 
ostensibly  to  obtain  the  facts  upon  which  to  frame  the 
banking  policy  of  the  assembly,  procured  the  appointment 
of  a  select  committee  on  banking  and  currency.  The  new 
charters  of  1859,  however,  were  passed  before  the  house 
received  the  committee's  report.  The  interesting  part 
of  this  document  was  not  so  much  the  report  proper,  which 
criticised  existing  arrangements  for  insuring  the  safety 
of  the  bank  note  circulation  as  the  evidence  of  bank 
officers,  which  accompanied  it.  There  the  loopholes  in 
charters  were  frankly  and  emphaticall}^  exposed.  One 
grave  defect  was  the  authorization  of  banking  investment 
beyond  the  country's  needs.  Another  was  the  failure  to 
hedge  the  privilege  of  circulation  with  necessary  safe- 
guards. Again,  no  means  were  provided  to  insure  the  full 
payment  of  the  capital  required  of  a  bank,  nor  was  there 
any  obligation  to  publish  the  names,  holdings,  and  ad- 
dresses of  the  owners  of  its  stock.  Limitation  of  circula- 
tion rights  to  paid-up  capital,  plus  specie  and  debentures, 
was  illogical  and  illusory.  Coin  or  bonds  could  only  be 
bought  with  capital  or  deposits.  A  livelier  interest  on  the 
part  of  directors  should  be  incited  by  requiring  of  them 
larger  holdings  of  paid-up  stock.  Banks  were  hampered 
by  the  usury  law;  instead  of  giving  warning  by  raising 
their  discount  rates  when  trouble  seemed  imminent,  they 
were  forced  to  refuse  some  applicants  altogether  and  con- 
fine accommodation  to  customers  with  valuable  accounts, 
or  those  only  of  whose  solvency  there  could  be  no  doubt. 

70 


History    of    Banking    in     Canada 

It  was  a  mistake  to  encourage  the  organization  of  small 
banks.  Compared  to  those  of  larger  capital,  experience 
in  the  United  States  had  shown  that  the  small  bank  was 
unstable  and  unsafe. 

Point  was  lent  to  this  last  criticism  by  the  failure,  late 
in  October,  of  the  International  and  Colonial  banks,  both 
recently  chartered  concerns.  Nominally,  their  head  offices 
were  in  Toronto,  but  their  operations,  consisting  chiefly 
of  note  issue,  were  mostly  in  the  United  States.  The 
Colonial  had  reported  at  the  end  of  September,  1859,  a 
note  circulation  of  $75,300  and  total  liabiHties  (exclusive 
of  capital)  of  $99,878;  the  International,  on  the  same  day, 
$119,021  of  notes  issued  and  liabilities  of  $134,087.  No 
great  loss  was  caused  the  Canadian  pubUc  by  their  collapse, 
but  the  scandal  and  the  ease  of  acquiring  dangerous  privi- 
leges which  had  led  to  the  scandal,  called  forth  bitter  and 
general  complaint.  Not  until  1863,  however,  did  the  legis- 
lature finally  repeal  these  two  charters,  and  two  others, 
which  had  been  exploited  with  similar  irresponsibility 
and  intent  to  defraud.  One  of  them,  the  Bank  of  Clifton 
(previously  the  Zimmerman  Bank) ,  had  pretended  to  re- 
deem or  to  cash  its  notes  in  Chicago;  the  other,  the  Bank 
of  Western  Canada,  owned  by  a  York  State  tavern  keeper, 
sought  to  float  its  issues  in  Wisconsin,  Kansas,  and 
Illinois. 

For  such  evils  as  were  thus  revealed,  or  as  the  bankers 
had  pointed  out  to  the  select  committee  on  banking  and 
currency,  the  finance  minister  (then  A.  T.  Gait)  devised 
a  remedy  all  his  own.  Rather  than  the  improvement  of 
existing  bank  charters  or  increased  care  in  the  grant  of 
new  ones,  he  invited  the  assembly  in  the  session  of  i860 


71 


National    Monetary     Commission 

to  consider  proposals  involving  as  sharp  a  break  with 
the  past  as  Lord  Sydenham's  project  of  1841.  His  plan 
was  "to  separate  currency  from  banking;"  his  purpose, 
' '  to  put  the  currency  of  the  country  on  a  perfectly  sure 
and  safe  footing  by  separating  it  from  the  banking  inter- 
ests and  removing  it  from  the  possible  suspicion  of  being 
affected  by  political  exigency."  "If  the  state  supplies 
the  credit,"  argued  Mr.  Gait,  "it  is  fairly  entitled  to  the 
profit  which  arises  from  its  use.  The  specie  resources 
of  the  banks  are  so  much  capital  kept  unproductive,  and 
to  that  extent  produce  loss  of  profit.  And  while  the 
present  system  lasts  it  will  be  necessary  that  each  bank 
should  keep  not  only  a  sufficient  reser\'e  of  specie  to 
protect  its  own  circulation,  but  to  a  certain  extent  that 
of  others.  Under  the  system  I  propose  this  necessity 
will,  to  a  great  extent,  be  obviated,  for  the  whole  resources 
of  the  country  will  be  pledged  for  the  redemption  of  the 
circulation."  He  proposed  to  do  directly,  what  the  free 
banking  system  attempted  by  a  side  wind — to  achieve  the 
benefits  of  the  Sydenham  scheme  without  endowing  the 
bank  of  issue  with  the  immense  political  power  involved 
in  the  right  and  obligation  to  discount  for  ordinary  banks. 
The  first  resolution  accordingly  set  forth  the  proposal 
that  no  paper  money  be  issued  except  on  the  credit  of 
the  province;  the  second,  that  such  notes  of  the  province 
be  a  legal  tender  and  redeemable  on  demand  in  specie, 
that  the  maximum  issue  be  fixed  at  $10,000,000,  and  that 
the  notes  be  put  into  circulation  by  the  banks,  vrho 
should  obtain  them  from  the  treasury  on  deliverv'  of 
one-fifth  the  amount  of  the  notes  in  specie,  one-fifth  in 
government  securities,  and  three-fifths  in  a  privileged  lien 

72 


History    of    Banking    in     Canada 

upon  their  assets,  paying  the  government  for  the  privi- 
lege of  circulating  amounts  up  to  half  their  paid-up 
capital  stock  at  the  rate  of  3  per  cent  per  annum,  and 
for  amounts  in  excess  of  half  their  capital  at  the  rate  of 
4  per  cent.  Specie  and  securities  so  received  the  treasury 
department  was  to  hold  as  a  reserve  against  the  notes. 
Since  the  average  of  three  years  showed  the  banks  to 
have  been  carrying  $2,422,000  odd  of  specie  and  $2,460,000 
of  debentures,  Mr.  Gait  figured  that  under  his  plan  close 
to  $1,000,000  of  resources  would  be  released  for  the  uses 
of  trade.  To  meet  the  seasonal  fluctuations  (in  1859  the 
circulation  rose  from  $8,122,000  in  May  to  $11,236,000  in 
October)  the  minister  suggested  that  banks  be  supplied 
with  notes  on  their  monthly  rather  than  yearly  averages, 
and  thought  that  the  collection  of  interest  upon  balances 
would  induce  the  banks  to  give  any  necessary  elasticity 
to  the  circulation.  Further,  he  proposed  the  repeal  of 
the  free  bank  act,  of  the  tax  upon  the  circulation  of 
chartered  banks,  and  of  the  clauses  in  their  several 
charters  which  obliged  them  to  invest  a  tenth  of  their 
paid-up  stock  in  the  debentures  of  the  province.  Relief 
from  the  circulation  tax  and  from  the  duty  to  own  bonds, 
however,  was  to  run  only  in  favor  of  such  banks  as 
surrendered  their  rights  to  issue  their  own  notes  and 
substituted  notes  of  the  province.  Banks  already  char- 
tered and  in  operation,  or  new  banks  which  should  open 
for  business  within  two  years,  were  to  be  confirmed  in 
their  issue  privileges  to  the  expiry  of  their  charters,  but 
no  longer.  The  treasury  department  was  to  be  endowed 
with  authority  to  issue  4  per  cent  exchequer  bills,  which 
would  provide  a  preferred  form  of  short-term  investment 

73 


National     Monetary     Commission 

and  a  medium  for  settling  bank  balances.  In  this  last 
proposal  the  minister  touched  upon  what  was  counted  by 
some  critics  a  serious  defect  in  the  existing  banking 
organization — the  customarily  rigid  insistence  upon  specie 
settlements  at  places  where  two  or  more  banks  had 
offices.  It  had  been  proposed  in  Toronto,  nearly  three 
years  before,  to  square  the  monthly  settlement  by  sterling 
exchange  instead  of  specie,  but  the  Montreal  banks 
refused  adherence  to  the  plan. 

None  of  the  chartered  banks  showed  any  eagerness  to 
exchange  a  franchise  to  issue  at  no  cost  beyond  the  cost 
of  printing  notes  for  a  right  which  would  cost  them  3  per 
cent  on  three-fifths  of  the  notes  taken  out  and  the 
current  rates  upon  the  specie  or  the  cash  paid  for  deben- 
tures with  which  they  were  to  pay  for  the  other  two- 
fifths.  Condemned  by  the  banks  as  a  currency  fatally 
inelastic  for  a  country  in  which  the  autumn  maximum 
reached  140  and  even  150  per  cent  of  the  spring  time 
minimum  of  circulation,  suspected  by  the  people  as  capa- 
ble of  exploitation  for  dangerous  political  abuse,  and 
criticized  by  the  commercial  community  as  substituting  a 
dear  currency  for  one  which  was  ideally  cheap,  issues  by 
a  treasury  department  found  scant  approval  in  the  legis- 
lature. Ivcss  than  two  months  after  the  introduction  of 
the  resolutions  the  government  withdrew  them.  In  the 
next  session  a  proposal  introduced  by  the  minister  to  bor- 
row on  exchequer  bills  in  the  sum  of  $4,000,000  was 
passed.  But  it  was  not  until  1866,  after  Mr.  Gait's  party 
had  lost  and  recovered  its  majority  in  parliament,  and  the 
Canadian  treasury  was  come  into  yet  sorer  straits,  that 
the   bank   of   issue   scheme,    much   modified,   was   given 

74 


History     of    Banking    in     Canada 

standing  in  the  statutes  as  the  provincial  note  act,  the 
forerunner  of  the  legislation  subsequently  to  govern  the 
issue  of  the  present  Dominion  notes. 

Something  over  $5,000,000  was  the  sum  immediately 
needed  in  1866  to  meet  the  floating  debt  of  the  province. 
Of  this,  $2,250,000  was  owing  to  one  bank  and  that  bank 
was  pressing  for  payment.  Balances  in  arrears  had  been 
renewed  so  often  in  England  that  the  credit  of  the  province 
had  suffered.  English  bankers  were  having  extreme  diffi- 
culty in  selling  Canadian  government  debentures  to  yield 
even  8  per  cent.  Mr.  Gait,  finding  the  banks  of  the  prov- 
ince unwilling  to  advance  the  government  a  sum  equal  to 
15  per  cent  of  their  capital,  proposed  that  the  government 
should  ' '  resume  a  portion  of  the  rights  which  they  had 
deputed  to  others,  and  meet  the  liabilities  of  the  country 
with  the  currency  which  belonged  to  it."  What  basis, 
either  in  law  or  in  fact,  there  may  have  been  for  this  express 
assumption  that  the  function  of  issue  was  a  prerogative  of 
the  Crown  it  is  needless  to  inquire.  The  resolutions  declar- 
ing the  expediency  of  an  issue  of  legal-tender  paper,  which 
the  government  brought  down,  proposed  no  cancellation 
of  existing  issue  privileges;  whatever  the  banks  might 
give  up  in  furtherance  of  the  scheme,  they  were  to  give  up 
of  their  free  will.  Before  the  measure  had  been  carried 
through  all  stages  of  consideration  in  the  lower  house  it 
encountered  so  much  criticism  in  point  both  of  principle 
and  detail  that  the  ministry  took  alternative  authority  to 
borrow  $5,000,000  on  direct  loan,  and  agreed  not  to  use 
the  power  of  issue  if  funds  could  be  obtained  otherwise. 

The  act  finally  passed  authorized  the  issue  of  not  more 
than  $8,000,000  in  provincial  notes,  payable  on  demand 


75 


National     Monetary     Commission 

in  specie,  either  at  Toronto  or  at  Montreal  as  the  notes 
might  be  dated,  and  legal  tender  except  at  those  offices. 
Arrangements  for  the  surrender  of  its  right  to  issue  its 
own  notes  might  be  concluded  by  the  governor-in-council 
with  any  chartered  bank  prior  to  January  i,  1868,  such 
bank,  however,  retaining  the  right  to  resume  its  issue 
privileges  upon  three  months'  notice.  To  any  bank  so 
surrendering  its  issue  and  withdrawing  its  notes  from 
circulation  within  a  year,  compensation  would  be  payable 
till  the  expiry  of  its  charter,  at  a  rate  not  to  exceed  5  per 
cent  per  annum  upon  the  amount  of  its  circulation  on 
April  30,  1866.  For  the  service  of  issue  and  redemption, 
one-quarter  of  i  per  cent  was  to  be  paid  every  three  months 
to  each  bank  circulating  provincial  paper  instead  of  its 
own,  the  commission  to  be  reckoned  on  the  average  amount 
outstanding  of  the  notes  so  issued  by  the  bank.  Banks 
relinquishing  issue  privileges  were  further  exempted  from 
the  obligation  to  hold  a  tenth  of  their  paid-up  capital  in 
provincial  debentures,  and  were  permitted  to  exchange 
such  debentures  at  par  for  provincial  notes.  Likewise, 
having  surrendered  their  own  circulation,  they  were  to 
escape  all  further  outlays  for  circulation  tax. 

As  a  reserve  against  the  legal  tenders,  the  receiver- 
general  was  commanded  to  hold  20  per  cent  in  specie  for 
the  amount  in  circulation  up  to  $5,000,000,  and  against 
amounts  in  excess  of  that  sum  25  per  cent  in  specie. 
Cover  of  provincial  debentures  to  the  full  amount  was 
required  for  the  difference  between  specie  reserves  and 
notes  outstanding.  In  all  but  what  concerned  the  issue 
of  notes  for  $1  and  $2  by  the  British  Bank,  the  act  to 
establish    freedom    of   banking    was    repealed.     Further, 

76 


History     of    Banking    in     Canada 

banks  were  relieved  from  the  traditional  penalties  for 
usury  retained  by  inadvertence  or  intent  in  the  legisla- 
tion by  which  they  had  been  permitted  to  take  up  to  7 
per  cent,  and  to  exact  certain  specified  commissions  in 
discounting  paper,  payable  at  offices  other  than  the  place 
of  discount. 

But  one  bank  proved  willing  temporarily  to  surrender 
its  rights  of  issue  and  undertake  the  circulation  of  pro- 
vincial notes.  That  was  the  Bank  of  Montreal.  For  the 
time  being,  it  would  seem,  the  provincial  note  issue  was 
the  Bank  of  Montreal's  favorite  scheme.  In  actual  oper- 
ation, the  first  effect  of  the  measure,  so  far  as  this  par- 
ticular bank  was  concerned,  was  to  liquidate  what  had 
been  a  distinctly  inactive  asset.  The  funds  the  bank  had 
locked  up  in  the  loan  to  the  province,  equally  with  its 
investment  in  debentures,  were  converted  into  provincial 
notes  available  for  use  in  any  kind  of  exchange.  In  the 
second  place,  the  bank  was  not  out  of  pocket  by  the  shift, 
for  upon  such  paper  it  drew  compensation  and  commission 
of  6  per  cent  from  the  government,  and  could  still  use 
the  notes  as  it  pleased  in  making  loans.  The  maintenance 
of  reserves  and  waiver  of  the  circulation  tax  made  the 
advance  cost  the  province,  however,  somewhere  between 
8  and  8>^  per  cent. 

So  far  as  the  other  banks  and  the  country  were  con- 
cerned the  effects  were  less  simple,  although  it  is  not 
clear  that  the  new  issue  caused  any  serious  or  widespread 
harm.  Unquestionably  the  other  banks  found  cause  to 
acknowledge  the  power  of  the  one  institution  which  had 
the  government  account  and  had  undertaken  the  issue 
of  government  notes.     A  number  were  induced  regularly 

S.  Doc.  332.  61-2 6  77 


National     Monetary     Commission 

to  hold  from  $50,000  to  $200,000  each,  under  an  arrange- 
ment that  practically  precluded  the  use  of  the  notes  as 
ready  cash.  The  adherence  of  others  to  a  like  arrange- 
ment was  gained  by  the  decision  of  the  Bank  of  Montreal 
to  demand  settlement  in  cash  at  different  points  outside 
the  centers,  rather  than  to  continue  the  practice  of  set- 
tling by  drafts  on  Montreal  or  Toronto.  At  such  points 
the  other  banks  would  thus  be  obliged  to  pay  in  specie; 
the  Bank  of  Montreal,  which  was  generally  a  creditor  in 
these  settlements,  could  pay  when  it  had  to  pay  in  gold 
or  legal  tenders.  Confronted  by  the  option  of  scattering 
their  reserves  to  all  the  points  where  they  met  the  Bank 
of  Montreal,  and  by  the  same  token  of  considerably  in- 
creasing their  specie  holdings,  demurring  banks  generally 
agreed  to  keep  a  quantity,  of  the  legal  tenders  continu- 
ally on  hand.  About  $1,000,000  of  the  notes  were  thus 
kept  permanently  outstanding.  Altogether  the  average 
circulation  of  legal  tender  paper  the  first  year  of  its  issue 
was  a  little  over  $3,000,000,  or  about  what  was  outstand- 
ing of  the  Bank  of  Montreal's  own  notes  in  the  spring  of 
1866.  Some  part,  about  $1 ,000,000,  of  the  treasury  needs 
had  been  obtained  by  direct  loan. 

Such  pressure  as  was  used  to  inject  a  proportion  of  the 
notes  into  banking  reserves,  no  less  than  the  device  of 
paying  out  in  Montreal  notes  redeemable  in  Toronto, 
Toronto  notes  dated  at  Montreal,  provoked  considerable 
criticism.  Along  with  certain  incidents  preceding  the 
financial  disturbance  in  which  the  Commercial  Bank  sus- 
pended payment,  they  furnished  the  material  for  a  bitter 
and  violent  controversy,  in  the  course  of  which  the  pro- 
vincial note  act,  the  Bank  of  Montreal,  and  the  minister 


History     of    Banking     in     Canada 

of  finance  were  all  roundly  condemned.  It  is  unnecessary 
here  to  consider  how  much  truth  there  may  have  been  in 
testimony  so  obviously  and  so  strongly  colored  by  the 
passions  of  the  time.  The  only  permanently  evil  effect 
of  the  government  issue,  if  that  be  an  evil,  has  been  the 
diminution  of  the  country's  specie  reserve,  brought  about 
under  the  legislation  which  created  the  issue  and  subse- 
quently increased  its  volume.  Even  before  1870  the  mere 
consideration  of  convenience  led  a  number  of  banks  to 
effect  a  decided  increase  in  their  reserve  holdings  of  legal 
tender  notes. 

The  year  1866  was  marked  by  the  definitive  failure  of 
the  Bank  of  Upper  Canada,  the  old  upper  province's  first 
chartered  bank.  Considering  the  forty-four  years  the 
corporation  had  been  carrying  on  its  business  and  the  pre- 
eminence it  had  once  enjoyed  in  the  communities  it 
served,  its  bankruptcy  caused  singularly  little  concern. 
But  evidence  of  coming  trouble  had  been  abundant  for 
some  years  before;  indeed,  since  1862  the  bank's  opera- 
tions had  consisted  of  little  more  than  quiet  liquidation 
with  open  doors.  The  immediate  interest  of  the  provin- 
cial government  in  the  bank  through  the  ownership  of 
shares  had  ceased,  of  course,  with  the  sale  of  those  shares 
in  1840,  but  the  prestige  and  dignity  of  a  government 
connection  persisted  through  more  than  twenty  years. 
In  1850,  moreover,  the  bank  had  managed  anew  to  obtain 
the  government  account.  The  exclusive  mark  of  confi- 
dence thus  conferred  probably  served  somewhat  to  exalt 
divers  grandiose  notions  the  management  already  enter- 
tained concerning  their  institution's  policy,  position,  and 
strength.     To  the  economic  development  of  the  western 

79 


National     Monetary     Commission 

province  which  marked  the  early  fifties,  the  extension  of 
railways,  to  the  increase  of  municipal  indebtedness,  to  the 
expansion  of  milling  properties,  and,  as  appeared  in  the 
end,  to  the  speculation  in  unimproved  lands,  the  bank 
found  both  duty  discharged  and  profit  gained  in  lending 
ready  aid.  Lawyers,  legislators,  the  gentry  and  profes- 
sions, civil  servants  and  politicians  properly  connected  or 
properly  introduced,  were  suffered  participation  in  the 
banks'  loan  favors  on  the  strength  of  mere  accommoda- 
tion paper,  or  on  the  ultimate  and  none  too  remote  secur- 
ity of  inflated  real  estate.  Down  to  1858,  however,  the 
bank  had  paid  good  dividends,  although  in  calling  up  cap- 
ital it  had  made  repeatedly  the  mistake  of  distributing 
the  premiums  received  on  new  as  bonuses  to  holders  of 
old  stock.  Considering  the  volume  and  character  of  their 
business,  the  management  had  consistently  failed  to  build 
up  an  adequate  surplus  or  rest. 

With  the  great  increase  of  railways  in  Canada  West 
there  came  a  shift  of  the  routes  of  trade,  no  less  than  of 
the  centers  of  the  milling  and  lumber  industry  which 
made  recovery  from  the  crisis  of  1857  slower  in  the  older 
country,  where  the  bank  had  long  been  established,  than 
in  the  newer  districts.  The  bank  was  sorely  hit  by  the 
commercial  failures  of  1858;  at  the  same  time  it  found 
itself  obliged  to  take  possession  of  much  depreciated 
real  estate.  One  in  particular  of  the  larger  transactions 
with  railway  obligations  turned  out  badly  to  the  tune  of 
nearly  half  a  million  dollars.  The  sum  of  $220,000 
was  appropriated  for  bad  debts  in  1858,  one  of  $400,000 
in  1859,  ^^^  $294,000  in  i860.  The  bank  was  in  such 
position  that  the  government  could  not  consider  avail- 

80 


History     of    Banking     in     Canada 

able  their  credit  balance,  then  considerably  in  excess  of 
$1,000,000.  In  1 861  a  new  manager  was  given  charge  of 
the  bank.  Upon  his  recommendation  to  the  share- 
holders, a  million  and  a  quarter  of  bad  debts  still  awaiting 
provision  after  the  appropriation  of  all  the  rest,  authority 
was  obtained  from  parliament  in  1862  to  reduce  the  par 
value  of  the  shares  from  $50  to  $30,  the  paid-up  stock 
from  $3,186,000  to  something  more  than  $1,900,000. 

The  results  of  an  official  investigation  of  the  finance 
department  begun  in  1862,  determined  the  government 
of  the  day,  then  lately  come  into  power,  to  shift  the 
bank  account  of  the  province  to  the  Bank  of  Montreal. 
The  debt  of  the  Bank  of  Upper  Canada  to  the  prov- 
ince by  way  of  deposits  was  fixed  at  $1,150,000  and 
transferred  to  a  special  account.  The  disclosures  of  the 
report  and  the  further  loss  of  standing  caused  by  the 
transfer  of  the  government  account  made  the  task  of 
rehabilitating  the  bank  hopeless.  The  dividend  was 
passed  in  1864  and  1865  and  a  steady,  significant  falling 
off  appeared  in  the  bank's  return  of  circulation,  deposits, 
and  discounts.  Authority  for  a  further  reduction  of  the 
stock  to  $1,000,000  was  obtained  in  August  the  following 
year,  but  before  action  could  be  taken  upon  this  the 
bank  was  obliged  to  close  its  doors  September  18,  1866. 

When  the  estate  was  transferred  to  trustees  in  Novem- 
ber the  notes  in  circulation  were  reported  at  $722,000; 
balances  due  other  banks,  $299,000;  deposits  by  the 
public,  $395,000,  and  deposits  of  the  government, 
$1,149,000.  Specie  had  fallen  to  $42,000,  but  the  landed 
and  other  property  of  the  bank  amounted  to  $1,673,000; 
securities,     $17,000;  bills     and     judgments,     $2,225,000; 

81 


National     M o  n  et ary     Commission 

bonds  and  mortgages,  $97,000.  Liquidation  of  the  estate 
was  slow;  for  some  obscm-e  reason — ostensibly,  to  be 
sure,  because  it  was  thought  necessary  first  to  realize 
the  assets — the  double  liability  of  the  shareholders  w^as 
not  promptly  enforced  (in  fact,  it  was  never  enforced) ; 
no  creditor  was  paid  in  full;  claims  against  the  bank 
had  to  be  or  were  taken  at  face  value  in  settlement  of 
debts  due  to  it;  the  administration  of  trustees  cost  large 
sums;  there  was  further  depreciation  in  the  real  estate 
and  doubtful  debts.  In  1870  the  whole  property  was 
turned  over  to  the  Crown.  The  Crown  redeemed  liabili- 
ties at  75  cents  on  the  dollar,  but  forbore  to  insist  upon 
the  Crown  priority.  In  the  end  about  $1,000,000  of 
the  sum  due  the  province  in  1866  proved  a  total  loss. 
Apart  from  interest  or  from  discounts  suffered  in  realiza- 
tion upon  claims  before  the  liquidators  were  ready  to 
pay,  creditor's  of  the  bank  among  the  Canadian  public 
(exclusive  of  the  government)  lost  rather  more  than 
$300,000;  the  shareholders,  all  the  stake  they  had  in 
the  bank. 

One  other  of  the  Upper  Canada  banks,  the  Commercial 
Bank  of  Canada,  first  known  as  the  Commercial  Bank  of 
the  Midland  District,  failed  in  1867.  It  had  helped  and 
to  some  extent  had  shared  in  the  speculative  movement 
prior  to  1857,  but  when  the  crash  came  it  was  nowhere 
near  so  badly  involved  as  the  Bank  of  Upper  Canada,  and 
rallied  quickly  from  the  losses  then  suffered.  Shortly  after 
1857,  however,  when  the  bank  took  over  the  account 
of  the  Great  Western  Railway  from  its  old  rival,  it 
opened  extensive  cash  credits  toward  the  operation  and 
construction    of    the    Detroit    and    Milwaukee    Railway, 

82 


History     of    Banking     in     Canada 

supposedly  on  the  faith  of  £250,000  granted  to  this 
enterprise  by  the  Great  Western.  The  Great  Western  sub- 
sequently repudiated  responsibihty,  and  in  1862  the  bank 
brought  suit  for  considerably  more  than  a  million.  No 
settlement  was  obtained  until  the  fall  of  1866,  when 
$1,770,000  Detroit  and  Milwaukee  7  per  cent  bonds  were 
turned  over  to  the  bank.  Instead  of  realizing  upon 
these  quickly,  the  bank  waited  and  thus  prolonged  its 
lockup.  Blind  popular  faith  in  banks  had  been  shaken 
by  the  Upper  Canada  failure,  and  a  proposal  at  the  meeting 
in  June,  1867,  to  reduce  the  capital  stock  by  25  per  cent 
started  a  quiet  but  persistent  withdrawal  of  the  Com- 
mercial Bank's  deposits.  Help  was  had  from  another 
bank  in  September  to  the  extent  of  $300,000.  A  joint 
advance  of  $750,000  was  asked  of  its  colleagues  on  October 
2 1 ,  with  the  idea  that  half  this  sum  for  four  and  half  for 
six  months  would  enable  the  bank  to  pull  through.  At  a 
meeting  held  to  consider  this  request,  the  banks  could  not 
agree  as  to  the  conditions  of  allotment  and  guaranty. 
The  government  were  under  pledge  to  extend  no  help 
without  their  bankers'  consent,  and  on  the  morning  of 
October  22  the  Commercial  Bank  stopped  payment.  The 
company  was  really  solvent  at  that  time,  but  lacked 
ready  cash.  In  a  little  more  than  two  months  note  and 
deposit  liability  of  $2,786,000  out  of  total  liabilities  on 
this  score  of  $4,657,000  was  paid  in  full.  Seven  months 
after  the  failure  the  shareholders  ratified  the  contract  by 
which  the  Merchants'  Bank  of  Canada  acquired  their 
property,  paying  therefor  at  the  rate  of  one  share  of  Mer- 
chants' stock  for  every  three  of  the  Commercial  Bank. 


83 


National      Monetary     Commission 

In  the  twenty-six  years  between  July  i,  1841,  and 
July  I,  1867,  the  number  of  banks  working  under  the 
laws  of  the  Province  of  Canada  was  increased  from  9  to  19 ; 
their  capital  paid  up,  including  the  capital  of  the  British 
Bank  employed  in  the  Canadas,  from  $9,106,548,  or  its 
equivalence  in  currency,  to  $27,618,440.  A  total  note 
circulation  (exclusive  of  the  provincial  notes  issued  by 
one  bank)  of  $8,312,386  was  reported  in  1867  as  against 
one  of  $3,676,180  in  1841.  Deposits  not  bearing  interest 
and  sums  not  otherwise  specified  due  by  the  banks  had 
grown  from  $3,145,872  to  $13,938,447,  deposits  bearing 
interest  from  $219,432  to  $14,765,879.  Of  the  banks 
working  under  colonial  charters  in  1841  but  one  had  a 
capital  greater  than  $800,000;  in  1867  there  was  one  with 
$6,000,000  paid  up;  another  with  $1,999,100;  a  third  with 
$1,600,000,  and  two  others  with  $1,200,000  or  more. 
Excepting  the  largest  bank,  the  four  newest  and  smallest, 
and  the  Commercial  Bank,  then  soon  to  fail,  the  aver- 
age paid  up  capital  of  the  13  companies  reporting  was 
$1,257,830.  Deposits,  which  in  1841  were  but  37  per  cent 
of  capital,  had  increased  to  slightly  over  100  per  cent  of 
capital.  In  respect  of  circulation  the  change  was  in  a 
contrary  direction.  The  precise  position  is  obscured  in 
any  return  of  the  quarter  century  by  the  peculiarity  of  the 
practice  or  condition  of  the  British  Bank.  Its  note  issue 
was  regularly  small  compared  to  its  capital  stock.  Banks 
acting  under  colonial  charters  generally  showed  a  con- 
siderable reduction  in  the  proportion  of  circulation  either 
to  capital  or  to  total  Habihties  between  1841  and  1867. 
A  summarized  statement  of  the  condition  of  the  banks  at 
ten -year  intervals  and  for  1867  is  printed  in  the  table 
herewith : 

84 


History     of    Banking     in     Canada 


Statement  oj  chartered  banks  in  the  Province  of  Canada. 
LIABILITIES. 


Number  of  banks  in  opera- 
tion   

Capital  stock  authorized  by 
act 

Capital  stock  paid  up 

Promissory  notes  in  circula- 
tion not  bearing  interest. . 

Balances  due  to  other  banks. 

Dividends  unpaid 

Net  profits  or  contingent 
fund 

Cash  deposits  not  bearing 
interest,  and  all  sums  not 
otherwise  specified  due 
by  the  banks 

Cash  deposits  bearing  inter- 
est   


Total  liabilities  other 
than  stock 


£2,  276,637 

919,04s 

340,  771 

21, 025 

146, 410 


786,468 
54.858 


2,  268,  577 


6  1851. 


«;£2,897,6l9 

I. 623, 43S 

271,621 

933 

59.845 


I, 126,305 
565.326 


3. 741. 757 


«  1861. 


$35.  266,666 
''24,  410,  796 


<*  1867. 


537,  466,  666 
27, 618, 440 


II,  780,364    I        8,312,386- 
444.  120  2,  771.925 


9.175.957  13,938,447 

9. 545. 341    1      14,765.879 


30,945,341  39,788,638 


ASSETS. 


Coin,  bullion,  and  provin- 
cial notes  / 

Landed  or  other  property  of 
the  bank 

Government  securities 

Promissory  notes  or  bills  of 
other  banks 

Balances  due  from  other 
banks  and  foreign  agen- 
cies  

Notes  and  bills  discounted.. 

Other  debts  due  to  the  bank 
not  included  under  fore- 
going heads 


£392.  540 


46,  lOI 
24, 661 


203,586 
3, 282, ISO 


£413.  422 


135.313 
43.825 


218, 501 
5.573.983 


, 960,439 


1,429.324 
2,  735.956 


I, 136, 153 


4, 157, 286 
39.588.842 


4,  064,  3? 


Total  assets. 


4,094,068  6,529,769   I   58,072,391 


.510.572 
.  142,57s 


1,651,  77? 


068,635 
158,  431 


2,  297,414 


72,  213,597 


"Journal,  Can.,  1841,  Appendix  O. 

''Journal,  Can.,  185  i.  Appendix  I,  No.  i  to  8  inclusive. 
(■The  Canada  Gazette.  Vol.  XX,  p.  1736. 
dThe  Canada  Gazette,  Vol.  XXVI,  p.  2245. 

f  This  includes  ;£62o,ooo  sterling,  being  the  capital  allotted  by  the  Bank  of  British 
North  America  to  its  Canadian  branches. 

/"Provincial  notes"  occurs  only  in  the  statement  for  1867. 

85 


National     Monetary     Commission 

Taken  all  in  all,  the  twenty-six  years  under  the  union 
form  a  period  of  marked  advance  by  the  Canadian  banks 
along  the  lines  they  were  subsequently  to  follow  in  point 
of  increased  stability,  greater  versatility,  and  more  thor- 
ough diversification  of  risks.  Much,  perhaps  most  of  the 
the  improvement  was  by  way  of  internal  organization, 
the  multiplication  of  branch  offices,  the  standardization 
of  practice,  and  the  elimination  of  methods  and  of  busi- 
ness not  now  accounted  commercial  banking  in  the  best 
sense  of  the  term.  Two  world-wide  and  more  or  less 
disastrous  financial  and  speculative  upheavals  had  been 
weathered  by  the  banks  without  suspension  of  payment, 
and  indeed  without  failures  whatsoever  at  the  time  strin- 
gency was  most  acute.  Neither  the  collapse  of  the  Bank 
of  Upper  Canada  nor  that  of  the  Commercial  Bank  can 
be  explained  as  ultimately  due  to  anything  but  cir- 
cumstances and  proceedings,  mistakes  and  misappre- 
hensions, peculiar  to  the  institutions  directly  involved. 
For  contemporary  critics,  to  be  sure,  both  banks  served 
as  dire  examples  of  the  evils  brought  about  by  the  exist- 
ing system  of  bank  regulation,  and  as  pointed  argument 
for  revolutionary  change.  But  the  complaints  of  some 
such  observers,  certainly,  were  too  often  tinged  by  sym- 
pathy for  the  unfortunate  holders  of  failed  banks'  shares. 
It  is  much  to  be  doubted  whether  in  the  twenty-six  years 
under  review  the  public  creditors  of  the  Canadian  banks 
lost  half  a  million  dollars  all  told. 

Down  to  1867  the  deposit  function  was  still  of  higher 
importance  only  in  the  cities  and  to  the  banks  which 
served  the  wholesale,  manufacturing,  and  financial  com- 
munities in  which  cheques  were  used  as  means  of  pay- 

86 


History     of    Banking     in     Canada 

ment.  Some  growth  of  deposits  came  about  in  the 
rural  districts  after  1854  or  1855  when  an  increase  of 
housebreaking  in  the  country  induced  farmers  some- 
what to  depart  from  their  habit  of  hoarding  notes.  But 
in  the  western  part  of  the  province,  where  wheat  and 
flour,  timber  and  wool  had  to  be  moved  each  year,  where 
the  produce  buyer,  then  as  now,  needed  to  pay  for  pro- 
duce in  cash,  the  note  circulation  was  of  predominant 
consequence.  All  kinds  of  business  slackened  consider- 
ably in  the  winter  when  the  water  routes  of  transporta- 
tion were  closed;  many  kinds  of  trade  were  much  more 
active  in  September  and  October  than  at  other  seasons 
of  the  year.  Hence  a  wide  and  regular  expansion  of  the 
note  issues  in  the  autumn  to  the  highest  volume  of  the 
twelvemonth;  hence  a  rapid  contraction  in  the  early 
winter  which  persisted  until  the  low  point  was  reached 
again  in  May.  Increased  provision  for  borrowers'  needs 
was  furnished  by  the  banks  without  other  cost  than 
paying  out  notes.  There  was  no  occasion  to  import  coin 
or  other  valuable  money  from  without  the  district  where 
the  augmented  demand  for  credit  appeared;  no  necessity 
to  call  up  additional  capital  to  supply  a  demand  for  loans 
which  endured  but  fourth,  a  third,  or  at  most  but  half  of 
a  year.  It  was  a  cheap  currency,  this  issue  against  gen- 
eral assets;  but  without  the  profits  of  issue,  borrowers  in 
the  western  country  would  have  had  to  pay  more  for  their 
credits,  or,  in  many  cases,  to  contrive  to  manage  in  their 
neighborhood  without  a  bank.  It  was  a  currency  of 
wide  and  comparatively  rapid  fluctuations  in  volume,  as 
the  lords  of  the  British  treasury  had  remarked  from  time 
to  time  with  every  sign  of  concern.     But  in  an  economy 


National     Monetary     Commission 

such  as  the  Province  of  Canada  then  had,  or  as  the 
Dominion  has  to-day,  a  fluctuating  currency  is  precisely 
what  the  country  wants. 

The  fining  up  of  the  Mississippi  Valley  and  the  growth 
of  population  in  New  York,  the  increase  of  export  and 
import  trade  with  Great  Britain  which  marked  the  fifties, 
the  influx  of  foreign  capital  into  the  colony,  the  reciprocit}^ 
treaty  with  the  United  States,  these  were  all  productive 
of  a  much  larger  business  in  exchange  than  any  which 
had  previously  engaged  the  attention  of  the  Canadian 
banks.  Prior  to  the  suspension  of  specie  payments  in 
the  States,  following  the  outbreak  of  civil  war,  the 
Canadian  banks  enjoyed  a  considerable  circulation  south 
of  the  frontier.  In  the  earliest  sixties  they  participated, 
in  no  small  way,  in  moving  the  American  crops.  A  num- 
ber of  the  larger  banks,  through  agents  at  first,  after- 
wards by  direct  representation,  traded  in  specie  and 
exchange  in  New  York,  where  two  of  them  became  leaders 
in  the  market  for  gold  and  sterling  bills.  In  Canada 
itself,  moreover,  there  had  already  begun  that  connection 
with  railway  enterprise,  municipal  borrowings,  and  exten- 
sive joint-stock  projects — not  always  felicitous  beginnings, 
to  be  sure — which  later  was  to  constitute  the  more  or  less 
typical  Canadian  corporation  of  this  sort,  a  financial  as 
well  as  a  commercial  bank. 


History     of    Banking     in     Canada 


IV. — The  First  Bank  Act  of  the  Dominion. 

Under  the  British  North  America  act  passed  by  the 
Imperial  ParUament  in  1867,  and  the  confederation  of  the 
Provinces  of  Canada,  Nova  Scotia,  and  New  Brunswick, 
which  this  measure  brought  about,  the  parUament  of  the 
new  Dominion  was  given  exclusive  authority  in  all  matters 
pertaining  to  currency  and  coinage,  banking,  the  incorpo- 
ration of  banks  and  of  the  issue  of  paper  money,  savings 
banks,  bills  of  exchange  and  promissory  notes,  interest 
and  legal  tender.  Subject  to  this  jurisdiction,  directly 
the  act  came  into  force,  therefore,  were  the  18  banks  char- 
tered by  Canada  (thereafter  divided  into  Ontario  and 
Quebec),  5  by  Nova  Scotia,  4  by  New  Brunswick,  and  i 
working  in  all  the  colonies  under  royal  charter,  but  obli- 
gated to  accept  such  general  regulations  as  the  Dominion 
might  impose.  The  banking  legislation  of  the  maritime 
provinces,  though  often  different  in  phrase  and  sometimes 
in  detail  from  that  of  Canada,  was  based  upon  substan- 
tially identical  principles.  The  chief  contrasts  between 
Nova  Scotia  and  New  Brunswick  banks  on  the  one  side, 
and  those  of  Canada  on  the  other,  lay  in  the  small  capitals 
of  the  maritime  province  banks,  and  in  their  tendency  to 
confine  their  operations  to  restricted  fields.  The  total 
paid-up  capital  at  the  moment  of  confederation,  including 
the  bank  with  the  royal  charter  among  those  of  Ontario 
and  Quebec,  was  for  these  two  provinces,  $29,467,773;  for 


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National     Monetary     Commission 

Nova  Scotia,  $1,552,389;  for  New  Brunswick,  $1,480,000; 
for  the  whole  Dominion,  $32,499,162.  Granted  prior  to 
confederation  and  not  yet  used,  but  not  yet  forfeited 
for  nonuser,  were  3  charters  passed  by  the  Province  of 
Canada,  2  by  Nova  Scotia,  and  5  by  New  Brunswick.  Of 
the  banks  already  in  operation,  17  charters  were  to  expire 
by  July  I,  1 87 1. 

In  the  first  session  of  the  new  parliament  little  was  done 
by  way  of  general  legislation  affecting  banks.  True,  the 
eleventh  chapter  of  the  first  volume  of  Dominion  Statutes 
is  an  "Act  respecting  Banks"  (31  Vict.,  c.  11),  but  it 
merely  extended  the  powers  of  banks  previously  incor- 
porated by  any  of  the  provinces  to  the  Dominion,  sub- 
jected the  banks  of  Nova  Scotia  and  New  Brunswick  to 
the  circulation  tax,  and  reenacted  for  the  whole  country 
such  general  legislation  in  respect  of  banks  as  was  then 
on  the  books  of  the  Province  of  Canada.  One  of  the 
more  important  of  these  paragraphs  empowered  banks 
to  hold  and  dispose  of  mortgages  taken  as  additional 
security  for  debts  contracted  in  the  usual  course  of  their 
business,  to  purchase  and  to  hold  lands  thus  mortgaged 
to  them,  to  bid  in  lands  auctioned  at  their  suit,  and  acquire 
absolute  title  therein,  to  act  on  power  of  sale,  and  the  like. 
Other  sections  dealt  with  loans  upon  warehouse  receipts, 
bills  of  lading,  and  the  like,  taken  as  security  at  the  time  of 
negotiating  the  loan,  and  the  prior  lien  accorded  to  the 
lending  bank  against  the  unpaid  vendor  of  the  commodi- 
ties involved.  The  banks  generally  were  exempted  from 
penalties  for  usury,  though  not  permitted  to  recover  at 
law  a  higher  rate  than  7  per  cent,  and  were  specifically 
permitted  collection  and  agency  charges  not  to  exceed 

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History     of    Banking     in    Canada 

one-half  of  i  per  cent  upon  notes  payable  at  places 
other  than  that  at  which  the  loan  was  made. 

In  1868,  again,  a  further  extension  of  the  laws  of  the 
Province  of  Canada  was  undertaken  in  a  measure  which 
declared  the  provincial  notes  of  1866  to  be  Dominion 
notes  for  which  the  Dominion  alone  was  responsible,  and 
continued  the  provisions  first  enacted  in  respect  of  this 
issue.  Authority  was  also  given  for  the  establishment  of 
branches  of  the  receiver-general's  department  in  Montreal, 
Toronto,  Halifax,  and  St.  John  for  the  issue  and  redemp- 
tion of  the  Dominion  notes.  Until  the  unification  of  the 
currencies,  notes  payable  in  Halifax  were  to  be  issued  at 
the  rate  of  $5  the  pound  sterling,  and  to  be  legal  tender 
only  in  Nova  Scotia  (31  Vict.,  c.  46).  The  last  of  the 
preliminary  legislation  extended  the  charters  of  1 1  of  the 
Province  of  Canada  banks  to  the  end  of  the  first  session 
of  parliament  after  January  i,  1870.     (32-33  Vict.,  c.  49.) 

For  what  he  had  done  or  had  omitted  to  do  in  connec- 
tion with  the  provincial  note  issue  and  the  failure  of  the 
Commercial  Bank,  A.  T.  Gait,  the  first  finance  minister 
of  the  new  Dominion,  received  a  deal  of  blame.  He  felt 
that  public  opinion  held  him  responsible  to  some  extent 
for  the  losses  suffered  by  investors  in  consequence  of  that 
failure.  His  usefulness  being  thus  marred,  he  resigned 
from  the  ministry  early  in  November,  1867.  Under  his 
successor,  John  Rose,  reports  upon  the  banking  system  of 
the  country  were  presented  by  select  committees  both  of 
the  Senate  and  of  the  House.  That  of  the  Senate  com- 
mittee condemned  the  provincial  note  act  in  set  terms  and 
recommended  a  return  to  the  conditions  obtaining  prior 
to    1866.     The   committee  were   further   of   the  opinion, 

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National     M  o  n  et  ary     Commission 

"however,  that  if  the  government  were  determined  by  some 
new  system  somehow  to  take  possession  of  the  currency 
of  the  country,  such  a  change,  which  the  committee 
strongly  deprecated,  should  be  in  the  direction  of  a  paper 
currency  based  on  Dominion  securities,  but  immediately 
redeemable  on  demand,  like  the  national-bank  notes  of 
the  United  States. 

The  first  report  of  the  house  committee  submitted  to 
the  Commons  in  the  session  of  1868-9,  consisted  merely 
of  the  answers  to  a  series  of  questions  drawn  up  with  the 
evident  view  of  eliciting  evidence  favorable  to  the  intro- 
duction of  bond-secured  bank  notes.  Among  these 
queries,  for  example,  was  one  concerning  the  expediency 
of  issuing  government  paper ;  another  related  to  the  prac- 
ticability and  advantage  of  introducing  a  system  of  banks 
issuing  currency  based  on  deposits  of  government  securi- 
ties analogous  to  the  American  system.  Notwithstand- 
ing the  manifest  bias  of  the  committee  the  inquiry  was 
given  a  wide  scope,  some  of  the  questions  calling  for  com- 
ment upon  the  past  services  of  existing  banks  and  their 
present  practice  and  business;  others  still  for  discussion 
of  the  defects  of  the  system  and  the  means  of  improving  it. 
Twenty-two  sets  of  answers  appeared  in  the  report,  1 1  of 
them  from  the  principal  executives  of  chartered  banks. 

The  weight  of  the  evidence  thus  collected  was  against 
the  issue  of  a  government  currency  and  against  the  issue 
of  bank  notes  upon  special  security.  Four  main  objec- 
tions were  offered  to  the  American  plan  of  protecting 
holders  of  bank  notes;  first,  the  reduction  of  the  loan  fund 
involved  in  the  purchase  of  the  necessary  bonds;  second, 
the  tendency  under  such  a  plan  to  permit  and  even  to 

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History     of    Banking     in    Canada 

encourage  the  organization  of  small  local  banks  with  a 
consequent  lessening  of  the  stability  of  the  banking  sys- 
tem; third,  the  lack  of  elasticity  of  bond-secured  issues, 
the  deficient  force  of  the  motives  acting  upon  the  issuers 
either  to  expand  or  to  contract  the  circulation  in  full  and 
automatic  accord  with  the  needs  of  trade;  and  fourth, 
the  probability  that,  with  only  a  comparatively  expensive 
currency  available  for  agricultural  loans,  such  credits 
would  be  reduced,  and  numbers  of  offices  in  the  country 
districts  closed  up. 

Certain  objections  to  the  existing  system  turned  upon 
the  lack  of  any  requirement  to  hold  a  minimum  fixed 
proportion  of  cash  against  liabilities  on  notes  and  de- 
posits; others,  again,  upon  the  failure  of  the 'traditional 
scheme  of  regulation  to  conform  to  theories  derived  from 
the  doctrine  that  the  right  to  furnish  currency  is  originally 
a  right  of  the  State,  or  the  faith  sometimes  based  upon  this 
doctrine  that  money  may  be  and  ought  to  be  made  by 
the  fiat  of  the  State.  The  valuable  constructive  criticism, 
however,  consisted  chiefly  of  these  suggestions  of  particu- 
lars in  which  bank  charters  might  be  improved : 

"  (a)  To  establish  a  minimum  capital  to  be  required 
from  newly  chartered  banks,  and  to  limit  the  number  of 
branches  in  proportion  to  the  paid-up  capital  stock. 

"  (6)  To  prevent  the  beginning  of  business  until  a  cer- 
tain part  of  the  capital  stock  is  paid  up,  held  in  specie, 
and  the  fact  certified  to  by  a  government  officer. 

"  (c)  To  make  the  double  liability  available  in  case  of 
need  within  a  reasonable  period,  by  assessment  of  share- 
holders for  the  deficiency  at  the  end  of,  say,  six  months 
after  suspension,  and  by  provision  that  the  subsequent 

S.  Doc.  332,  61-2 7  93. 


National     Monetary     Commission 

proceeds  form  the  dividend  of  the  shareholders,  rather 
than  the  creditors. 

"  {d)  To  make  transfers  within  three  months  of  the 
suspension,  and  at  any  time  thereafter,  void. 

"  (e)  To  require  such  statements  of  accounts  as  would 
check  illegitimate  operations. 

"  (/)  To  prohibit  any  but  moderate  dividends  till  a  re- 
serve fund  should  be  accumulated,  such  to  be  made  good 
if  impaired. 

"  {g)  To  make  circulation  a  first  charge  upon  the  assets 
of  an  insolvent  bank. 

"  Qi)  To  prohibit  the  issue  of  notes  for  less  than  $4. 

"  {i)  To  require  a  certain  proportion  of  demand  liabili- 
ties to  be  held  in  specie,  say,  20  per  cent. 

"  (;)  To  limit  the  circulation  to  paid-up  capital  stock 
and  government  securities,  and  provide  that  any  excess 
should  be  covered  by  specie  in  hand  over  and  above  the 
amount  required  to  fulfill  the  previous  recommendations. 

"  (Jz)  To  require  each  half  year  the  publication  of  a  cer- 
tified list  of  the  shareholders. 

"  (/)  To  prohibit  the  reduction  of  capital  stock,  and  to 
compel  the  stockholders  to  make  good  the  capital  if  it 
should  be  impaired." 

What  the  new  minister  of  finance  offered  Parliament 
in  the  way  of  a  banking  policy  was  rather  a  ready-made 
scheme  than  a  project  founded  upon  the  recommendations 
of  the  experts  who  testified  to  the  committee  of  the  house. 
The  resolutions  presented  to  the  Commons  in  May,  1869, 
called  for  the  reconstruction  of  Dominion  bank  legislation 
upon  the  model  of  the  "national  bank  act"  of  the  United 
States.     In  substance  it  was  identically  the  proposal  put 

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History     of    Banking     in     Canada 

forward  by  E.  H.  King,  the  general  manager,  and  approved 
by  the  board  of  the  Bank  of  Montreal  in  November,  1867. 
In  the  memorandum  describing  his  plans  this  officer  had 
declared  the  belief  "that  the  interests  of  the  country  will 
be  best  served  by  the  diffusion  of  banking  interests  in 
different  localities,  leaving  to  the  greater  banks,  in  large 
measure,  the  care  of  the  mercantile  and  foreign  trade  of 
the  country,  and  to  the  lesser,  in  their  own  districts,  the 
care  and  support  of  local  enterprise."  Then  followed  the 
plan  to  deprive  the  banks  of  the  power  of  the  issue  against 
their  general  credit,  to  permit  the  issue  only  of  notes  pre- 
pared by  the  Government  and  turned  over  to  the  banks 
only  on  deposit  of  equivalent  amounts  of  bonds;  to  per- 
mit the  foundation  in  each  county  of  a  local  bank  with 
small  capital,  and  to  provide  for  recurring  needs  for  ex- 
pansion of  the  currency  by  requiring  maximum  deposits 
of  bonds  as  note  security,  and  by  periodically  moving  the 
currency  from  east  to  west  as  in  the  United  States. 
Among  the  bankers  of  the  time,  responsibility  for  the  prep- 
aration of  the  government's  project  was  commonly  im- 
puted, probably  with  ample  basis  of  fact,  not  to  John 
Rose,  the  minister  of  finance,  but  to  the  chief  executive 
of  the  government's  bankers  and  fiscal  agents,  E.  H. 
King. 

Apart  from  the  limitation  of  issue  to  notes  secured  by 
pledge  of  Dominion  securities  with  the  government,  and 
the  provision  that  no  bank  should  issue  in  excess  of  its 
paid-up  capital  stock,  the  resolutions  carried  the  pro- 
posals, first,  that  so  long  as  they  were  redeemed  in  specie, 
such  notes  should  be  a  legal  tender  throughout  the  coun- 
try except  at  the  ofiice  of  the  issuing  bank  and  at  a 

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National     M  on  et  ar  y     Commission 

redemption  agency  to  be  established  in  Montreal  or  in  the 
capital  city  of  the  province  in  which  the  bank  was  situate ; 
second,  that  banks  should  maintain  reserves  of  specie  equal 
to  one-fifth  their  note  issue  and  one-seventh  of  their  de- 
posits at  call;  and,  third,  that  notes  should  be  the  first 
charge  upon  the  estate  of  a  failed  bank;  deposits  at  call, 
not  bearing  interest,  the  second  charge.  Further  pro- 
posals  concerned  the  continuance  of  sundry  safeguards 
already  in  force  or  the  adoption  of  others  suggested  by 
bankers  whose  testimony  was  before  the  House.  If  ap- 
proved the  plan  was  not  to  go  into  effect  until  July  i, 
1871. 

In  the  speech  with  which  he  brought  the  resolutions 
down,  the  minister  put  most  stress  upon  the  duty  of  the 
Government  ' '  to  see  that  the  circulation  which  the  public 
at  large  is  bound  to  take  should  be  placed  on  as  sound  and 
uniform  a  basis  as  possible."  "It  is  of  essential  impor- 
tance to  the  interests  of  the  country,"  he  argued,  "that 
the  circulating  medium  be  placed  on  a  sound  and  uniform 
basis."  There,  undoubtedly,  the  minister  touched  upon 
one  of  the  weak  points  of  the  note  circulation  as  it  then 
was.  Notes  were  not  of  uniform  value  the  country 
through.  A  note  was  payable,  under  the  law,  only  at  the 
place  or  office  where  it  was  dated.  One  branch  some- 
times accepted  in  payment  the  notes  of  another  branch 
of  the  same  bank,  but  merely  as  a  matter  of  courtesy, 
not  as  of  right.  Bank  notes  circulating  in  districts  at  all 
remote  from  the  place  of  date  and  issue  were  subject  to 
a  discount.  As  a  rule  Montreal  notes  would  pass  at  par 
in  Toronto,  but  that  was  because  the  exchange  was  in 
favor   of   the    eastern    city.     Toronto    notes   would    not 

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History     of    B  an  k  in  g     in     Canada 

ordinarily  be  worth  their  face  in  Montreal.  Furthermore, 
the  course  of  the  paper  involved  by  the  two  most  recent 
bank  failures  had  shown  that,  quite  apart  from  questions 
of  ultimate  security,  the  immediate  redemption  of  bank 
notes  in  all  circumstances  was  not  yet  fully  assured. 

But  whatever  the  defects  of  the  existing  system,  it  soon 
became  clear  that  the  community  was  too  well  content 
with  sundry  patent  advantages  peculiar  to  banks  of  the 
Canadian  type,  lightly  or  willingly  to  suffer  a  revolutionary 
change.  The  appearance  of  the  resolutions  precipitated 
a  storm  of  criticism,  objection,  and  protest.  Indeed, 
already  in  April,  the  banks  of  Ontario  and  Quebec  had 
adopted  resolutions  against  any  fundamental  changes  in 
the  system,  and  for  the  preservation  of  the  note  circula- 
tion as  it  was.  Naturally  neither  the  Bank  of  Montreal 
nor  the  Bank  of  British  North  America,  both  of  whose 
chief  executives  favored  bond-secured  issues,  subscribed 
to  these  resolutions.  Halifax  banks  declared  the  existing 
system  was  satisfactory  and  that  change  was  neither 
asked  for  nor  desired.  Over  70  petitions  "that  the  circu- 
lation of  the  banks  be  preserved  on  substantially  the 
present  basis"  or  that  "no  changes  of  a  fundamental 
character  be  made  in  the  present  system  of  banking," 
petitions  from  boards  of  trade  and  the  leading  towns  and 
cities,  as  well  as  from  10  of  the  banks,  were  presented  to 
the  Commons  in  the  spring  of  1869. 

Opposition  of  a  determined  and  significant  character 
also  developed  in  the  House  itself.  The  expansion  of  the 
note  issue  each  fall  was  effected  mostly  in  Ontario,  and  in 
Ontario's  behalf.  Ontario  was  in  no  wise  ready  forth- 
with to  share  the  profits  of  crop  moving  with  the  east,  or  to 

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National     M  on  et  ar  y     Commission 

conduct  that  operation  with  less  expedition  or  greater 
expense.  It  was  felt,  too,  that  the  province  needed  all 
the  resources  of  credit  already  at  its  command.  Even  if 
the  change  to  specially-secured  notes  was  to  be  gradual 
and  requirement  of  a  fixed  reserve  in  specie  delayed  until 
1 87 1 ,  it  was  asserted,  with  every  show  of  reason,  that  rising 
eight  millions  would  be  needed  to  put  the  banks  in  as  good 
case  as  under  issue  against  their  general  credit.  That 
sacrifice  would  be  independent  of  the  loss  of  cheap  till 
money,  and  of  the  possibility  of  maintaining  country 
branches  at  low  cost,  which  would  follow  the  shift  to  issue 
against  deposits  of  bonds. 

Only  one  day's  debate,  that  of  June  i,  1869,  was 
devoted  to  the  resolutions  in  the  House  of  Commons. 
Pronounced  hostility  to  the  proposals  was  shown  not 
only  by  the  Opposition  but  by  Ontario  members  gener- 
ally, and  by  some  of  the  staunchest  supporters  of  the 
government.  It  was  known  that  the  Senate  was  even 
less  likely  than  the  Commons  to  favor  this  scheme.  On 
June  2,  the  resolutions  were  considered  by  the  Cabinet, 
with  what  degree  of  unanimity  was  not  disclosed.  The 
project  lost  rather  than  gained  in  favor  the  following 
fortnight.  On  June  15,  the  finance  minister  announced 
that  the  government  was-  willing  temporarily  to  Vv^ithdraw 
the  proposals  but  would  bring  them  before  the  House  for 
consideration  the  following  session.  But  before  the  fol- 
lowing session  was  opened  the  Hon.  John  Rose,  believing 
that  the  rejection  of  his  banking  policy  was  definitive,  gave 
up  his  portfolio.  With  his  withdrawal  from  the  ministry 
there  vanished  any  immediate  prospect  that  the  banking 


History     of    Banking    in     Canada 

system  of  the  country  would  be  recast  upon  American 
lines. 

Sir  Francis  Hincks,  for  fifteen  years  in  the  British 
colonial  service,  and  but  then  lately  returned  to  Canada, 
succeeded  Mr.  Rose  as  minister  of  finance.  Whatever  the 
preconceptions  or  preferences  of  the  new  minister  in 
respect  of  banking  or  currency,  he  seems  to  have  set  to 
work  to  form  new  conclusions  concerning  current  needs 
upon  the  basis  of  the  facts  at  hand.  After  numerous 
conferences  with  bankers,  merchants,  and  publicists,  and 
after  careful  study  of  existing  legislation,  Sir  Francis 
formulated  measures  which,  though  intended  to  put  the 
banking  of  the  country  upon  a  safe  and  stable  basis, 
yet  introduced  no  radical  departure  from  the  system  to 
which  the  Dominion  was  used.  The  proposed  legislation 
was  brought  before  Parliament  early  in  the  session  of  1870. 

In  presenting  his  proposals  to  the  House,  the  minister 
pointed  out  that  sufficient  need  for  a  uniform  and 
general  banking  law  applicable  to  the  whole  Dominion 
was  indicated  as  well  by  the  number  of  charters  about  to 
expire  as  by  the  application  for  new  ones  already  pre- 
sented. Further,  recent  experience  showed  that  the 
holders  of  bank  notes  should  be  given  greater  security. 
Used  as  the  people  were,  however,  to  advances  of  credit 
in  the  form  of  notes,  it  was  inexpedient  to  force  the  cover 
of  the  currency  by  deposit  of  government  securities,  and 
cause  such  advances  to  be  reduced  or  withdrawn.  Pub- 
lic opinion,  finally,  was  against  the  establishment  of  a 
bank  of  issue  such  as  had  been  proposed  some  thirty 
years  before. 


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National     Monetary     Commission 

The  main  purposes  of  the  bill  submitted  by  the  minister 
and  with  slight  changes  of  detail  accepted  by  the  House, 
may  be  summed  up  thus  (33  Vict.,  c.  XI) : 

First.  To  require  the  security  of  a  large  paid-up  capital. 
It  was  first  proposed  to  insist  upon  $1,000,000  authorized 
stock,  all  to  be  paid  up  within  five  years,  but  in  deference 
to  the  needs  of  the  maritime  provinces,  the  minimum 
authorized  capital  was  cut  to  $500,000,  with  $200,000 
paid  in  before  the  beginning  of  business  and  20  per  cent 
each  year  thereafter.  Certification  of  the  fact  of  the  first 
payment  was  required  from  the  treasury  board. 

Second.  To  restrict  the  circulation  of  the  banks  to 
notes  of  $4  and  upward.  What  the  banks  gave  up  here 
they  gained  in  exemption  from  the  circulation  tax  and 
from  the  obligation  to  invest  a  tenth  of  their  paid-up 
stock  in  government  securities.  The  government,  on 
their  side,  wanted  the  room  made  by  the  retirement  of 
small  bank  issues  for  the  circulation  of  $1  and  $2  Domin- 
ion notes. 

Third.  To  oblige  every  bank  to  receive  its  own  notes 
in  payment  at  any  of  its  offices,  and  thereby  somewhat 
to  reduce  the  discount  upon  notes  circulating  remote 
from  their  place  of  date.  Notes  were  to  be  payable,  how- 
ever, only  where  they  were  expressly  made  payable,  one 
of  which  places  was  always  to  be  the  principal  office  of 
the  bank. 

Fourth.  To  extend  the  circulation,  or  rather  the  amount 
outstanding,  of  Dominion  notes  by  obHging  each  bank  to 
hold  usually  half  and  not  less  than  one-third  of  its  cash 
reserve  in  Dominion  notes.  In  so  far  as  such  notes  held 
by  the  banks  were  not  covered  by  specie,  this  provision 


History     of    Banking    in     Canada 

had  all  the  air  of  a  forced  loan.  The  minister  did  not 
deny  that  the  step  was  one  of  fiscal  expediency  rather  than 
bank  reform.  At  the  same  time  the  complaints  of  the 
Opposition  that  the  proposal  unduly  diminished  the  coun- 
try's gold  reserve,  that  it  involved  the  borrowing  of  a 
large  sum  practically  at  call,  and  that  it  was  of  objection- 
able morality  in  a  political  sense,  were  calmly  waved  aside. 
Sir  Francis  felt  obliged  "to  contend  in  the  interests  of 
the  public  at  large  that  they  were  entitled  to  some  share 
in  the  profits  of  the  circulation." 

Fifth.  To  prohibit  loans  by  a  bank  on  its  own  stock, 
saving  its  lien  upon  the  shares  and  unpaid  dividends  of 
its  debtors  on  overdue  debts. 

Sixth.  To  prevent  the  impairment  of  paid-up  capital 
by  undue  division  of  profits.  Directors  concurring  in 
such  impairment  were  to  be  individually  liable  as  for 
debts  due  the  bank.  With  the  intent  to  forestall  ap- 
plications for  reductions  on  account  of  losses,  it  was 
further  provided  that  capital  lost  should  be  made  up 
forthwith  by  calls  upon  the  unpaid  portions  of  share- 
holders' subscriptions  and  by  the  application  of  all  net 
profits. 

Seventh.  To  keep  dividends  within  bounds  until  the 
bank  should  accumulate  a  rest  or  reserve  fund.  Taking 
a  lesson  from  the  extravagant  poHcy  of  the  Bank  of  Upper 
Canada,  Parliament  forbade  dividend  or  bonus  in  excess 
of  8  per  cent  per  annum  until  the  rest  or  surplus  of  a 
bank,  after  deduction  of  all  bad  or  doubtful  debts,  should 
equal  20  per  cent  of  the  paid-up  capital  stock. 

Eighth.  To  penalize  the  bank  for  suspension  of  the 
payment  of  any  of  its  liabilities,  continuing  for  ninety 


National     Monetary     Commission 

days,  by  forfeiture  of  its  charter,  except  for  the  purpose 
of  making  certain  calls  and  of  winding  up  its  business. 

Ninth.  To  make  the  liability  of  shareholders  to  the 
amount  of  their  subscriptions  and  to  an  equal  amount  in 
addition  certainly  available  and  effective.  Directors 
were  empowered  to  enforce  this  liability  to  the  extent 
deemed  necessary  without  waiting  for  the  collection  of 
debts  to  the  bank  or  the  sale  of  its  property.  Calls  for 
not  more  than  20  per  cent  at  intervals  of  not  less  than 
thirty  days  or  on  less  than  thirty  days'  notice  became 
mandatory  so  soon  as  a  suspension  had  continued  for  six 
months.  Shareholders  defaulting  lost  all  claim  in  the 
estate  of  the  bank  without  preventing  the  recovery  of  the 
calls.  By  this  provision,  likewise  suggested  by  the  recent 
failure,  it  was  expected  to  shift  the  burden  of  waiting  for 
di\'idends  from  the  creditors  to  the  shareholders  of  a  failed 
bank.  Fiuther,  to  safeguard  such  creditors,  the  liability 
of  the  transferor  of  bank  shares,  the  transfer  of  which 
should  be  registered  within  thirty  days  prior  to  a  sus- 
pension, was  continued,  saving  his  recourse,  of  course, 
against  the  transferee. 

Tenth.  To  give  shareholders  the  right  to  cast  in  the 
meetings  of  the  bank  each  as  many  votes  as  he  had  held 
shares  for  three  months  prior  to  the  meeting. 

Eleventh.  To  require  that  directors  should  each  hold 
of  the  stock  of  the  bank  not  less  than  $3,000  when  paid- 
up  capital  was  $1,000,000,  not  less  than  $4,000  when  the 
capital  was  $1,000,000  to  $3,000,000,  and  not  less  than 
$5,000  when  the  capital  was  over  $3,000,000;  to  empower 
shareholders  to  regulate  by  by-law  the  qualification  and 


History     of    B an  kin g     in     Canada 

number  of  directors,  which  should  be  not  less  than  5  nor 
more  than  10,  the  method  of  filling  vacancies  occurring 
between  annual  meetings,  and  the  remuneration  of  the 
president,  vice-president,  and  directors;  finally,  to  con- 
tinue the  restriction  of  directors'  discounts,  whether 
for  themselves  or  for  firms  in  which  they  might  be 
partners,  to  one-twentieth  of  the  total  discounts  of  the 
bank. 

Twelfth.  To  require  the  transmission  of  certified  lists 
of.  shareholders,  showing  their  residences  and  their  hold- 
ings, to  the  minister  of  finance  each  year. 

Thirteenth.  So  to  amend  and  expand  the  monthly 
return  to  the  government  that  the  condition  and  character 
of  each  bank's  assets  and  liabilities  could  be  better  under- 
stood. Thus  the  new  schedule  contained  a  special 
heading  for  government  deposits,  whether  payable  on 
demand  or  after  notice;  on  the  assets  side,  separate  head- 
ings for  loans  to  the  government,  overdue  discounts  not 
specially  secured,  overdue  debts  secured  and  for  real 
estate,  other  than  bank  premises,  and  mortgages  on  real 
estate  sold  by  the  bank. 

Fourteenth.  To  constitute  the  making  of  willfully  false 
returns,  and  the  giving  of  an  unfair  or  undue  preference 
to  any  creditor  of  a  bank,  misdemeanors,  the  guilty 
persons  being  further  held  responsible  for  all  damages 
sustained  by  those  whom  they  set  about  to  injure  or  to 
deceive. 

Fifteenth.  To  provide  for  the  extension  of  existing  bank 
charters,  with  amendments  embodying  the  foregoing 
provisions,  by  a  species  of  letters  patent,  which  would  be 


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National     Monetary     Commission 

issued  by  the  governor  in  council  upon  a  favorable  report 
from  the  minister  of  justice  and  the  treasury  board." 

Further  provisions  limited  to  chartered  banks  the  issue 
of  notes  intended  for  circulation  by  a  penalty  upon  unau- 
thorized issue  of  $400  for  every  offense,  forbade  the  issue 
of  notes  for  less  than  $4,  applied  all  pertinent  clauses  of 
the  measure  to  the  bank  acting  under  royal  charter  and 
to  the  bank  of  the  principal  partners  en  commandite,  and 
continued  the  bank  charters  then  in  force  to  January 
I,  1872. 

Contrary  to  the  minister's  first  suggestion,  new  banks 
were  not  allowed  to  come  into  existence,  as  old  ones  were 
to  be  continued,  by  letters  patent.  Parliament  refused 
to  give  this  element  of  its  jurisdiction  up.  Neither  were 
the  banks  required  to  keep  cash  in  reserve  in  an  amount 
equal  to  at  least  a  fixed  proportion  of  their  liabilities. 
Sir  Francis  Hincks  had  favored  this  requirement  at  first, 
and  a  few  of  the  bankers  took  the  same  view.  But  the 
argument  against  the  theory  of  a  fixed  reserve  offered  by 
most  of  the  bankers,  in  conference  with  the  minister  dur- 
ing the  preparation  of  the  resolutions,  was  strong  enough 
to  persuade  him  to  abandon  it.  Much  could  be  said,  and 
in  fact  was  said,  in  favor  of  making  its  notes  a  first  charge 
upon  the  assets  of  an  insolvent  bank.  The  possibility  that 
depositors  might  start  runs  in  order  to  convert  ordinary 
into  preferred  claims  seemed  to  Sir  Francis  to  jeopardize 
the  stability  of  the  banks,  and  accordingly  he  rejected  the 
proposal  of  a  noteholder's  prior  lien. 

«  The  treasury  board  is  a  commission  consisting  of  the  minister  of  finance 
and  any  five  of  the  other  members  of  the  privy  council.  The  minister  of 
finance  is  the  treasurer,  and  has  as  assistant  a  deputy  minister  to  whom 
most  of  the  routine  is  intrusted.       Rev.  Stats,  of  Canada,  1906,  chap.  23.) 

104 


History    of    Banking     in     Canad 


a 


Obliging  the  banks  to  use  government  paper  for  a  good 
proportion  of  their  reserves  was  only  one  way  in  which 
the  finance  minister  proposed  to  invade  what  champions 
of  the  banking  interest  were  pleased  to  consider  vested 
rights.  Another  limb  of  his  policy  was  considerably  to 
augment  the  general  circulation  of  Dominion  notes.  By 
canceling  the  privilege  of  bank  issue  under  $4  a  further 
certainty  of  markedly  wider  use  for  the  legal-tender  paper 
was  established.  The  minister  took  care  to  have  the 
power  to  meet  such  demands  ready  at  hand.  The  ar- 
rangement for  issue  and  redemption  by  one  of  the  char- 
tered banks,  in  force  since  1866,  was  brought  to  an  end, 
and  the  management  of  the  government  circulation 
turned  over  to  officers  of  the  government.  Authority 
was  taken  to  establish  offices  for  issue  and  redemption — 
branches  of  the  receiver-general's  department — in  the  pro- 
vincial capitals,  and  to  increase  the  whole  issue,  by  not 
more  than  a  million  at  a  time,  at  intervals  of  not  less  than 
three  months,  to  the  total  of  $9,000,000.  Against  this 
the  act  {T^Ty  Vic,  c.  9)  ordained  that  the  receiver-general 
should  hold  specie  and  Dominion  debentures  to  the 
amount  of  the  circulation  outstanding — debentures  not 
to  exceed  80  per  cent  of  the  circulation;  the  specie,  as  a 
rule,  to  be  equal  to  25  per  cent  of  the  debentures  (20  per 
cent  of  the  circulation)  and  never  less  than  15  per  cent. 
Issues  in  excess  of  $9,000,000  were  to  be  covered  by 
specie,  dollar  for  dollar,  and  of  notes  so  covered  the  issue 
to  any  quantity  necessary  might  be  undertaken. 

So  far  as  circumstances  permitted,  the  measure  "to 
regulate  the  issue  of  Dominion  notes,"  was  meant  to 
reproduce  in  Canada,  the  issue  department  of  the  Bank 

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National     Monetary     Commission 

of  England,  in  all  that  department's  essential  principles 
of  organization  and  work.  Sir  Francis  Hincks  believed 
"that  the  functions  of  the  issue  department  should  be 
automatically  confined  to  the  exchange  of  gold  for  notes 
and  vice  versa ;  that  an  amount  can  be  established  which 
may,  with  perfect  safety,  be  issued  upon  public  securities, 
and  all  beyond  that  fixed  amoimt  in  gold. ' '  Under  pressure 
of  political  exigency,  excess  of  issue  over  $9,000,000  was 
permitted  in  1872,  against  gold  holdings  of  but  35  per 
cent.  (35  Vic,  c.  7.)  The  Liberals,  newly  come  into 
power  in  1875,  changed  the  rule  to  50  per  cent  in  gold 
for  the  amounts  outstanding  between  $9,000,000  and 
$12,000,000,  and  dollar  for  dollar  against  circulation  in 
excess  of  $12,000,000.  (38  Vic,  c  5.)  As  the  area  of 
the  Dominion  extended,  additional  branch  offices  of  the 
receiver-general's  department  were  opened  in  Prince 
Edward  Island,  British  Columbia,  and  Manitoba.  In 
1880  the  limit  of  issue  against  specie  and  debentures  was 
extended  to  $20,000,000  and  the  specie  reserve  required 
against  anything  less  than  that  sum  reduced  to  15  per 
cent,  cover  for  another  10  per  cent  of  the  circulation, 
however,  being  stipulated  in  the  form  of  debentures  of  the 
Dominion  guaranteed  by  the  government  of  the  United 
Kingdom.  (43  Vic,  c  13.)  Thirteen  years  later,  an  act 
of  1903  once  more  increased  the  amount  but  partly  to 
be  covered  by  specie  to  $30,000,000.  (3  Edw.  VII,  c  43.) 
In  later  years  the  government  has  held  gold  in  amounts 
generally  equal  to,  and  sometimes  greater  than,  the 
quantity  of  Dominion  notes  in  the  reserves  of  the  banks. 
No  serious  practical  inconvenience  has  been  caused  by 
the  legislation  in  the  shape  it  was  given  under  Sir  Francis 

106 


History     of   Banking    in     Canada 

Hincks,  while  the  treasury  has  gained  considerably  from 
the  privilege  of  providing  the  small  notes  needed  by  the 
country  at  only  nominal  cost.  With  the  chartered  insti- 
tutions furnishing  the  fluctuating  volume  of  issues  of 
larger  denominations,  and  the  government  the  small 
change  from  $i  upward,  Canada  has  presented,  since 
confederation,  rather  an  exceptional  example  of  the  con- 
current circulation  of  currencies  regulated  by  the  antag- 
onistic theories  of  the  banking  principle  and  of  the 
currency  school. 

Further  to  increase  the  Dominion's  command  of  ready 
funds,  the  minister  of  finance,  and  parliament  with  him, 
decided  in  1871  to  take  over  the  government  savings 
banks  and  savings  banks  authorized  to  invest  their 
deposits  only  in  government  securities,  which  had  been 
established  prior  to  confederation  in  the  maritime  prov- 
inces and  to  provide  for  the  opening  of  additional  offices. 
At  the  same  time  changes  were  made  in  the  regulations 
governing  the  post-office  savings  banks,  authorized  in 
1867.  Henceforward  the  receipts  of  these  offices,  as 
well  as  those  of  the  government  savings  banks,  were  to  be 
paid  into  the  consolidated  revenue  fund,  and  payments 
which  might  be  demanded  from  such  offices  were  to  be 
made  out  of  that  fund.  No  arrangement  for  a  reserve, 
nor  for  the  investment  of  deposits  in  securities  was  pro- 
vided for  either  sort  of  bank.  In  the  administration  of 
its  own  savings  banks,  or  of  the  post-office  savings  banks, 
the  government  took  no  particular  care  to  limit  the 
advantages  of  this  service  to  the  needy  and  uninformed. 
The  interest  paid  was  so  high  (4  per  cent  until  1889,  and 
then  2>y2  per  cent  until    1897)  and  the  limit  put  upon 

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National    Monetary     Commission 

individual  deposits  so  generous  that  for  rising  thirty- 
years  the  chartered  banks  found  the  government  one  of 
their  strongest  competitors,  as  well  for  more  or  less 
permanent  deposits  at  interest,  as  for  saving  deposits  in 
the  stricter  sense  of  the  term. 

In  the  form  it  finally  took,  the  bank  act  of  1870  was  not 
acceptable  to  the  banks.  The  provisions  for  continuing 
by  letters  patent  the  corporate  life  of  banks  whose  char- 
ters were  about  to  expire  was  an  innovation  to  which  the 
grant  of  charter  by  Parliament  was  preferred.  Inasmuch 
as  but  one  bank  had  taken  advantage  of  the  measure 
passed  the  preceding  session,  the  ministry  determined 
early  in  1871  to  draft  a  new  law,  "a  general  banking  act, 
which  would  embody,  not  only  the  provisions  of  the  pre- 
vious act  of  the  last  session,  but  also  the  general  provi- 
sions of  what  might  be  termed  the  internal  regulations  of 
banks."  In  this  the  bank  charters  were  to  be  extended 
for  ten  years. 

The  measure  thus  described,  a  document  of  some 
seventy-seven  sections  and  twenty  three  pages,  became, 
when  passed,  the  first  bank  act  of  the  Dominion  under 
which  the  banks  actually  worked.  (34  Vic,  c.  5.)  Only 
a  few  changes  were  made  in  the  new  provisions  enacted  the 
preceding  year.  One  such  change — it  can  scarcely  be 
called  an  improvement — relaxed  the  requirement  of  a 
large  paid-up  capital  as  a  security  to  the  public  creditors 
of  a  bank.  The  least  authorized  and  subscribed  capital 
on  which  a  bank  might  start  operations  was  left  as  before 
at  $500,000,  but  the  new  bank  might  now  open  for  busi- 
ness with  only  $100,000  paid  up,  the  payment  of  a  further 
sum    of    $100,000,   however,   being  required   within  two 

108 


History     of    Banking    in     Canada 

years.  The  provisions  regarding  loans  upon  warehouse 
receipts  and  similar  documents,  in  one  aspect  really  mat- 
ters of  commercial  law,  but  now,  as  in  previous  legislation, 
developed  as  bank  law,  were  revised  and  amended.  The 
double  purpose  of  these  changes  was  to  simplify  procedure 
and  to  extend  the  application  of  the  statutes  permitting 
loans  on  the  security  of  commodities  stored  and  awaiting 
sale,  or  on  the  way  to  market,  passing  into,  out  of  or 
through  the  country  or  in  process  of  conversion  from  the 
raw  state  to  finished  manufactured  product.  One  short 
declaratory  clause,  struck  out  in  1879  (42  Vic,  c.  45)  after 
convincing  experience  of  its  pernicious  possibilities,  per- 
mitted a  bank  to  lend  upon  the  collateral  security  of  the 
shares  of  any  other  bank.  The  prohibition  against  lend- 
ing on  the  banks'  own  shares  was  retained,  and  in  1875, 
made  still  more  severe  by  clauses  forbidding  banks  to 
trade  or  to  deal  in  its  own  stock.  In  other  particulars, 
the  new  law  presented  no  departure  in  principle  from  the 
general  measure  passed  the  year  before.  For  the  purposes 
of  closer  examination,  however,  the  document  is  pre- 
sented in  full  in  Appendix  i. 


S.  Doc.  332.  61-2 8  109 


National    Monetary     Commission 


V. — Legisi^ation  and  Development,  i 867-1 890. 

From  the  date  of  confederation  to  the  ist  of  January, 
1890,  the  number  of  banks  under  Dominion  jurisdiction 
increased  from  28  to  38;  their  paid-up  capital  from 
$32,500,000  to  $60,289,910;  circulation  from  $10,102,439 
to  $33,577,700;  total  liabilities,  other  than  capital  and 
rest,  from  $44,548,376  to  $171,684,322;  and  their  total 
assets  from  $80,722,834  to  $252,166,623,  The  periods  of 
most  rapid  growth  were  1869-1873  and  1880-1883. 
There  was  little  rally  from  the  stagnation  of  the  middle 
eighties  prior  to  1888. 

Adequately  to  set  forth  the  reasons  for  the  fluctuating 
fortunes  of  the  banks  in  this  period,  or  to  explain  the 
forces  making  for  the  marked  expansion  of  the  decade 
1 898-1 907,  is  decidedly  the  task  of  the  economic  historian. 
To  separate  the  story  of  the  growth  of  a  group  of  banks 
in  point  of  profit  or  resources,  or  even  of  variety  of  busi- 
ness, from  that  of  the  agricultural,  industrial,  commercial, 
and  financial  progress  of  the  community  from  w^hich  the 
banks  draw  their  gains,  is  scarcely  practicable  here. 
Comprehensively  to  set  forth  the  intimacy  of  the  con- 
nection of  individual  banks  with  certain  industries,  or 
groups  of  industries,  or  with  certain  sections  of  the  coun- 
try, even  in  the  case  of  banks  so  catholic  in  their  choice 
of  business  and  of  scene  as  the  Canadian  banks  have 
come  to  be,  involves  too  many  personalia,  too  great  an 
abundance  of  minute  detail.     So   far  as   the  first  great 


History    of    Banking     in     Canada 

expansion  of  1 869-1 873  is  concerned  it  is  not  clear  that 
the  Canadian  economy  was  under  influences  essentially 
different  from  those  which  brought  about  the  tremendous 
increase  of  trade  and  speculation  which  preceded  the  crisis 
of  1873  ill  other  parts  of  the  commercial  world. 

Contemporary  observers  called  the  period,  and  rightly, 
"an  era  of  remarkable  prosperity."  Swift  advance  was 
the  characteristic  condition  in  almost  every  direction. 
Thus  the  Dominion  government  was  able  between  1867 
and  1874  to  increase  the  public  debt  from  $93,000,000  to 
$141,000,000;  the  federal  revenue  from  $13,600,000  to 
$24,200,000;  total  exports,  $57,000,000  in  1868,  rose  to 
$89,000,000  in  1873-74;  imports  m  the  like  period,  from 
$73,000,000  to  $128,000,000.  Between  1870  and  1875  the 
railways  of  the  country  were  extended  from  2,497  to  4,826 
miles.  Upon  the  Intercolonial  road  there  were  spent 
some  fifteen  and  a  half  millions.  Railway  construction 
and  building  operations  at  home,  and  the  insistent  de- 
mand for  products  of  the  forest  abroad,  greatly  enhanced 
the  value  of  all  kinds  of  timber,  with  the  ultimate  effect 
of  attracting  excessive  investment  in  the  lumber  industry 
and  of  inflating  the  value  of  timber  limits  and  timbered 
land.  Under  the  stimulus  of  the  prospective  cheapening 
of  freights,  and  of  the  sanguine  confidence  with  which  men 
generally  viewed  the  future,  there  were  large  and  sometimes 
more  or  less  extravagant  projects  of  manufacture  floated, 
artificial  impulse  being  supplied  in  many  cases  by  the  dis- 
position of  municipalities  liberally  to  bonus  incoming  con- 
cerns. Kasy  money  and  what  were  read  as  certain  signs  of 
enduring  possibilities  of  profit,  combined  to  assure  a  ready 
welcome  for  promotions  of  joint  stock  companies,  and 


National    Monetary     Commission 

especially  of  those  devoted  to  financial  and  public-service 
schemes.  Greater  still,  perhaps,  was  the  influx  of  capital, 
and  rather  too  often  of  credit,  into  a  wide  variety  of  com- 
mercial endeavor.  Long  time  accorded  wholesalers  by 
the  English  export  houses,  liberal  terms  passed  on  by 
these  to  retail  traders,  and  granted  with  a  deal  of  care- 
lessness concerning  the  record  or  sagacity  of  the  recipients 
of  credit,  prepared  the  way  for  widespread  embarrassment 
when  the  power  or  disposition  of  the  consumer  to  main- 
tain purchases  at  boom  volume  suddenly  fell  off. 

While  the  country  prospered,  the  banks  fared  well. 
With  the  great  advances  making  in  manufacture,  trans- 
portation, and  general  trade,  and  with  millions  of  bank 
capital  struck  off  the  provision  of  Ontario  by  the  failures 
of  1866  and  1867,  there  naturally  appeared  a  call  for  more 
facilities  from  the  borrowers'  side,  and,  from  the  investors' 
view,  an  opportunity  for  additional  banks.  What  fol- 
lowed justifies  the  inclusion  of  bank  expansion,  whether 
in  point  of  number  or  of  apparent  resources,  among  the 
most  conspicuous  of  all  the  speculative  growths  of  the 
period.  Beginning  in  May,  1868,  the  movement  for  new 
banks  continued  until  June,  1874,  with  the  result  that  no 
less  than  28  projects  were  carried  to  the  point  of  obtain- 
ing incorporation  from  Parliament.  Nine  of  these  charters 
were  forfeited  for  nonuser,  but  by  the  end  of  1874  the 
number  of  new  banks  opened  for  business  in  this  term  had 
risen  to  19. 

Larger  and  more  rapid  than  any  additions  due  to  new 
ventures,  however,  was  the  increase  of  banking  capital 
effected  by  the  older  banks  through  calling  up  new  shares. 
In  this  same  term,  when  $31,000,000  net,  or  more  than 


History    of    Banking     in     Canada 

$34,000,000  gross,  were  added  to  the  paid-up  capital  stock 
of  the  Canadian  system,  half  the  sum  was  provided  by 
three  of  the  banks  established  prior  to  confederation. 
Twenty  others  of  the  older  banks  added  some  eleven  mil- 
lions to  capital  in  blocks  of  from  one  to  eleven  hundred 
thousand  each.  In  a  little  more  than  seven  years  the 
capital  invested  under  Dominion  regulation  was  doubled. 
Total  liabilities  were  nearly  trebled,  having  been  increased 
from  $44,500,000  to  $126,000,000;  total  assets  from  about 
$80,000,000  to  more  than  $200,000,000.  The  increase  of 
bank  capital  continued  for  some  time  after  the  beginning 
of  the  general  reaction  which  followed  the  panic  and 
crisis  in  the  United  States.  Figures  for  paid-up  stock 
came  close  to  the  high  point  of  the  thirty-three  years, 
1867-1899,  in  June,  1876,  when  41  banks  reported  $67,- 
199,051.  In  so  far  as  there  had  been  speculation  in  bank 
shares  upon  borrowed  funds,  there  was  an  element  of 
artificiality  in  this  increase.'  Loans  upon  the  collateral 
security  of  shares  of  other  banks  were  reported  for  a  total 
of  $3,813,000  in  December,  1873,  and  at  $5,308,000  a  year 
later.  How  much  surreptitious  lending  there  was  by 
each  upon  its  own  shares,  a  practice  in  which  some  of  the 
banks  had  certainly  engaged,  the  return  to  the  govern- 
ment does  not  reveal.  As  late  as  1890  the  banks  were 
faring  comfortably  with  $6,000,000,  in  round  numbers, 
less  paid-up  stock  than  they  nominally  had  in  1876. 
That  once  well  started,  the  movement  was  pushed  to 
excess  seems  beyond  question,  but  justification  for  a 
good  part  of  the  expansion  could  be  derived  from  the 
development  of  the  banks'  business.  Thus  their  note 
issues  practically  trebled  in  volume  between  1868  and  1873 

"3 


National     Monetary     Commission 

(December),  the  rise  being  from$io,i57,483  to  $29,016, 659, 
while  notes  and  bills  discounted  increased  in  the  same 
time  from  $54,899,000  to  $131,996,000. 

However  reckless,  however  frenzied,  the  fashion  in 
which  the  future  had  been  discounted,  the  records  of  the 
time  seem  to  show  little  in  the  trade  or  banking  situation 
of  Canada,  in  the  latter  part  of  1873,  wholly  parallel  to  the 
American  crisis  of  that  year.  In  the  strict  sense  of  the 
term,  Canada  suffered  no  panic.  Money  became  scarcer 
and  dearer,  a  deep  depression  of  the  timber  market  began 
as  early  as  June,  and,  except  in  the  grain  business,  which 
was  helped  by  good  English  demand,  a  general  slackening 
of  trade  occurred.  Through  1874,  the  effort  to  restrict 
accommodation  was  hampered  by  the  necessity  of  support- 
ing many  debtors  whose  assets  were  likely  to  prove  defi- 
cient, if  realization  were  forced  forthwith.  It  was  not 
until  1875  that  the  stringency  was  generally  felt  in  the 
fullest  force.  Early  in  that  year  a  heavy  contraction 
occurred  in  both  the  circulation  and  deposits  of  the  banks, 
but  although  the  drain  reached  $12,500,000  in  three 
months,  total  discounts  were  reduced  by  scarcely  2 
per  cent.  Failures  for  $28,843,000  occurred  in  Canada 
in  1875,  or  in  twice  the  number  and  for  nearly  four  times 
the  liabilities  of  the  year  before.  The  period  of  readjust- 
ment was  long;  the  recovery  exceedingly  slow.  Just 
when  normal  conditions  were  restored  would  be  hard  to 
determine ;  little  marked  improvement  in  business  appeared 
before  the  fall  of  1879.  Meanwhile,  not  only  in  the  carry- 
ing trade,  in  the  lumber  and  timber  industries,  and  in 
retail  trade,  where  many  of  the  gravest  excesses  had 
occurred,   but  also  in   the  coal,   cotton,   salt,   and  slate 

114 


History    of    Banking     in     Canada 

industries,  the  process  of  sanitation  was  proving  difficult 
and  costly  for  those  immediately  concerned.  At  the 
same  time  it  was  expensive  for  the  banks.  In  December, 
1874,  their  current  loans  were  reported  at  $139,379,000; 
four  years  later  at  $97,603,688;  the  circulation  on  like 
dates  fell  from  $29,000,000  to  $22,000,000.  Notwith- 
standing all  that  was  written  off  in  these  trying  years, 
unsecured  overdue  debts  rose  f rom$ i  ,494,000  to  $2,921 ,000, 
while  overdue  debts  secured  by  real  estate  were  doubled, 
and  the  holdings  of  real  estate,  other  than  bank  premises, 
increased  from  $575>499  to  $2,383,474. 

By  way  of  reductions  of  capital  stock,  amalgamations 
in  which  proprietaries  of  one  or  both  banks  took  new  stock 
of  less  value  than  the  par  of  their  old,  or  by  voluntary 
liquidation,  seven  banks  effected,  independently  of  any- 
thing written  off  their  surplus  funds  or  rests,  a  diminution 
of  the  paid-up  banking  capital  of  Canada  amounting  to 
$6,500,000  between  1875  and  1880.  La  Banque  Jacques 
Cartier  reduced  its  capital  from  $2,000,000  to  $500,000; 
the  Merchants  Bank  of  Canada  from  nearly  $9,000,000  to 
a  little  over  $6,000,000;  the  St.  Lawrence  Bank,  changing 
its  name  to  the  Standard  Bank,  reduced  its  stock  by  about 
$150,000.  The  Metropolitan  Bank  of  Montreal,  with  a 
capital  of  $800,170,  went  into  voluntary  liquidation  in 
1876,  the  shareholders  eventually  receiving  about  57  per 
cent  upon  the  par  value  of  the  stock.  Stockholders  of  the 
Stadacona  Bank,  who  decided  on  like  action  in  1880, 
recovered  the  full  face  value  of  their  shares.  In  1875  the 
Bank  of  the  Niagara  District  was  amalgamated  with  the 
Imperial  Bank,  and  in  1876  the  Royal  Canadian  with  the 
City  Bank,  the  corporation  thus  formed  being  renamed 


115 


National     Monetary     Commission 

the  Consolidated  Bank.  In  these  two  cases,  however, 
there  appears  to  have  been  no  noteworthy  lessening  of  the 
capitalization  involved.  The  market  course  of  bank 
shares,  and  the  hardships  suffered  by  shareholders  in  the 
period  of  contraction  may  be  judged  by  estimates  of  the 
depreciation  in  the  value  of  bank  stock,  made  at  the  time. 
In  1879  Sir  Francis  Hincks  reckoned  the  shrinkage  of  five 
years  at  nothing  less  than  $25,000,000.  If  account  were 
taken  merely  of  what  appeared  in  the  government  return, 
or  in  the  annual  balance  sheets,  the  calculation  of  the 
changes  in  the  par  value  of  paid-up  stocks  and  surplus 
funds  or  rests  would  show  shareholders'  losses  of  practically 
$i« ,000,000  on  this  score  alone. 

Such  figures  of  course  include  allowance  for  capital  sunk 
in  banks  which  failed.  Of  downright  failures  there  were 
three.  Three  other  banks  stopped  payment  in  the  spring 
or  summer  of  1879,  but  were  enabled  to  resume  operations 
in  time  to  save  their  charters.  The  worst  of  the  failures, 
whether  in  point  of  liabilities  or  creditors'  losses,  was  that 
of  the  Mechanics'  Bank  of  Montreal.  Suspended  for  three 
months  in  1875,  it  had  managed,  by  a  reduction  of  capital 
amounting  to  60  per  cent  and  more  and  by  subscriptions 
to  new  stock,  to  get  once  more  on  its  feet.  But  it  found 
little,  if  any,  support  in  reputable  business  circles.  In  the 
difBcult  period  succeeding  1876  its  discpunt  business 
shrank  to  an  inconsiderable  volume  of  undesirable  loans, 
while  its  circulation,  much  larger  in  proportion  to  capital 
than  that  of  the  other  Montreal  banks,  was  kept  out  only 
by  improper  and  illegal  means.  After  the  failure,  solvent 
shareholders  were  called  upon  for  the  whole  of  their  double 
liability,  but  even  with  what   this   added  to  the  estate 

116 


History    of    Banking     in     Canada 

neither  note  holders  nor  other  creditors  received  more  than 
57/^  per  cent  of  their  claims.  At  the  final  suspension  the 
total  liabilities,  exclusive  of  stock,  were  $547,238.  Inde- 
pendently of  interest  losses  the  public  lost  some  $240,000 
by  the  collapse.  So  many  of  its  obligations  were  in  the 
form  of  notes,  and  held  by  those  whp  could  ill  afford  to  lose, 
that  the  possibilities  demonstrated  by  the  Mechanics'  fail- 
ure aroused  general  indignation  and  concern. 

The  failure  of  the  Bank  of  Liverpool  was  different,  in  this 
wise;  that  its  note  issue  was  small  and  appears  to  have 
been  redeemed  rather  promptly  by  that  bank,  the  chief 
creditor  of  the  one  in  default,  which  bought  the  Liver- 
pool's assets.  The  Dominion  government's  claim  was 
$84,996,  that  of  other  banks  $35,000'  and  of  the  public 
$12,671.  After  long  litigation  the  double  liability  was 
enforced  against  the  shareholders  and  about  96  per  cent 
distributed  upon  the  liabilities  at  the  time  of  failure — 
$136,480.  The  Consolidated  Bank,  although  in  August, 
1879,  it  also  had  become  bankrupt,  was  wound  up  with  less 
discredit  than  either  of  the  other  two.  Eventually  both 
notes  and  deposits  were  paid  in  full,  and  enough  was  saved 
from  the  wreck  to  divide  among  its  proprietors  about  23 
per  cent  of  the  par  value  of  a  stock  reduced  from  the  origi- 
nal sum  by  40  per  cent.  While  shareholders  sunk  more 
than  $3,000,000  in  this  venture,  the  public  loss  was  limited 
to  such  discounts  as  were  taken  on  claims  by  notes  or  de- 
posits between  the  time  of  suspension  and  the  time  the 
liquidator  was  ready  to  redeem.'* 

«  From  1867  to  1876  there  was  but  one  failure  of  a  chartered  bank  in 
which  the  pubHc  suffered  loss,  that  of  the  Bank  of  Acadia,  which  went  down 
in  1873,  after  a  corporate  existence  just  short  of  four  months.  Out  of  this 
wreck,  however,  neither  noteholders  nor  other  creditors  recovered  more 

117 


National     M  o  n  et  ar  y     Commission 

Since  the  lives  of  all  the  banks  acting  under  Dominion 
charter  were  to  expire  July  i,  1881,  it  became  necessary 
in  the  session  of  1880  to  take  up  the*,  question  on  what 
terms  to  renew  them.  Some  amendments  to  the  legisla- 
tion of  1 87 1  had  been  made  from  time  to  time  as  the  need 
appeared.  Most  important  of  these  was  the  substitution, 
already  noted,  of  prohibition  for  permission  of  the  practice 
of  one  bank's  lending  upon  another  bank's  shares  (42 
Vic,  c.  5).  Both  in  1873  (36  Vic,  c  3)  and  in  1875  (38 
Vic,  c  17)  the  form  of  the  monthly  return  had  been  ex- 
panded to  the  end  of  exposing  separately  as  well  the  ac- 
counts with  the  provincial  as  with  the  Dominion  govern- 
ments, of  distinguishing  between  balances  due  to  or  from 
banks  or  agencies  in  the  United  Kingdom  and  similar  ac- 
counts in  foreign  countries,  and  of  presenting  the  liabili- 
ties of  directors,  whether  as  primary  promissors  or  as  in- 
dorsers.  These  were  minor  changes;  now,  it  was  ex- 
pected, a  general  extension  of  charters  would  be  marked 
by  an  effort  more  or  less  thoroughly  to  revise  the  bank  act. 

In  the  discussion  and  thought  of  this  time  upon  ques- 
tions of  banking  and  currency  and  in  the  movements 
which  proceeded  from  them,   there  appeared  two  main 

than  20  per  cent  upon  total  liabilities  of  $106,914.  The  debts  of  the 
Commercial  Bank  of  Canada  were  redeemed  at  face  during  its  suspension, 
and  of  course  assumed  in  full  by  the  bank,  to  which  the  estate  was  sold. 
Payment  in  full  was  also  made  to  the  creditors  of  the  Commercial  Bank  of 
New  Brunswick,  which  failed  in  1868.  The  Westmoreland  Bank,  likewise 
domiciled  in  New  Brunswick,  was  creditably  liquidated,  though  at  the 
expense  of  the  shareholders  from  whom  the  double  liability  was  called  up. 
The  Gore  Bank — third  of  the  banks  to  begin  business  under  an  Upper 
Canada  charter  and  the  last  to  give  up  the  fight — was  absorbed  by  one  of 
its  younger  rivals  in  1869,  at  about  57K  per  cent  on  its  nominal  capital, 
after  the  stockholders  had  already  effected  a  40  per  cent  reduction  in  the 
value  of  their  shares. 


ii3 


History    of    Banking     in     Canada 

trends.  One  of  these  was  towards  the  issue  of  irredeem- 
able paper  money  by  the  government.  Conceived  and 
held  partly  as  logical  corollary  to  the  doctrine  underlying 
the  "national  policy"  of  high  protection,  which  had  been 
approved  at  the  polls  such  time  as  the  Conserv^atives  were 
returned  to  office,  the  theory  that  exchanges  should  be 
made  with  currency  based  upon  labor,  land,  or  the  faith 
of  the  state,  was  embraced  by  such  numbers  and  with 
such  enthusiasm  that  the  leaders  of  the  party  in  power 
felt  bound  to  show  it  no  small  respect.  Any  indigenous 
preferences  for  fiat  money  had  been  strengthened,  of 
course,  by  comparisons,  usually  to  Canada's  disadvan- 
tage, between  the  progress  of  the  Dominion  and  the 
growth  of  the  United  States  since  the  civil  war.  Many 
of  what  were  dubbed  the  "rag  baby"  arguments  used  in 
Canada  were  drawn  from  the  arsenal  of  the  influential 
and  energetic  greenback  party  south  of  the  border. 
Champions  of  a  "national  currency,"  however,  lacked  the 
backing  of  business  which  stood  the  national  policy  in 
good  stead,  and  apart  from  considerate,  even  deferential 
attention  to  the  presentation  of  their  proposals  in  the 
house,  got  nothing  further  from  the  government  than  an 
increase,  cited  earlier  in  these  pages,  of  the  limit  upon 
the  amount  of  Dominion  notes  which  might  be  but  partly 
covered  by  coin. 

The  other  movement,  to  which  most  thinking  persons 
lent  their  sympathy,  if  not  their  active  help,  took  shape 
as  a  demand  for  a  better  regulation  of  the  issues  of  the 
banks.  The  notes  of  the  banks  which  had  failed  in  1879 
fell  to  a  discount  directly  they  could  no  longer  be  re- 
deemed.     What  faith  there  mio^ht  have  been  that  the 


119 


National     Monetary     Commission 

issues  of  the  Consolidated  Bank  would  be  paid  at  par 
was  shaken  by  disclosures  of  the  shameful  mismanage- 
ment and  by  the  notorious  inadequacy  of  the  assets  of 
the  Mechanics'  Bank.  Besides,  there  was  many  a  holder 
of  failed  banks'  notes  who  could  not  wait;  between 
realization  at  a  discount  and  waiting  for  payment  in  full 
he  had  no  choice  when  such  a  note  was  all  the  cash  he  had. 
To  cure  such  troubles  as  had  appeared  under  the 
Canadian  system  of  regulation,  those  were  not  lacking 
who  believed  the  prescription  ready  in  the  example  of 
the  United  States.  Once  again,  though  without  the 
ministerial  backing  it  had  in  1869,  there  appeared  the 
plan  to  remodel  Canadian  charters  on  American  lines 
and  to  secure  the  note  issue  by  special  deposits  of  bonds. 
Again,  also,  the  inferior  stability,  the  deficient  elasticity, 
and  the  higher  cost  of  the  service  of  the  "national" 
banks  proved  sufficient  argument  against  the  plan. 
Others  suggested  an  audit  by  shareholders  or  inspection  by 
the  government,  believing  that  with  earlier  discovery  and 
recognition  of  questionable  assets  in  the  bill  books  of  the 
banks  bank  embarrassments  would  be  less  frequent  and 
serious  than  in  1 876-1 879.  This  proposal  was  rejected, 
partly  because  of  the  great  practical  difficulty — some 
called  it  the  impossibility — of  an  inspection  by  any  but 
a  bank's  own  officers,  when  the  property  to  be  scruti- 
nized was  not  under  one  roof  but  in  as  many  different 
places  as  a  bank  happened  to  have  branches.  Not  without 
weight,  too,  was  the  responsibility  likely  to  be  imputed 
to  the  government  in  the  case  of  failure  by  banks  which 
its  inspectors  had  passed. 


History    of    Ban  kin*  g"    in     Canada 

The  plan  most  widely  favored  and  the  protection  for 
note  holders  which  was  advocated  by  the  banks  them- 
selves was  to  make  the  paper  intended  for  circulation 
a  first  charge  or  prior  lien  upon  the  assets  of  the  issuing 
banks.  The  total  assets  of  all  the  banks  were  then  about 
eight  times  their  debts  upon  notes;  for  single  banks  the 
proportion  was .  seldom  as  low  as  six,  and  for  some  it 
stood  as  high  as  ten.  Failure,  it  was  believed,  would 
inevitably  befall  a  bank  before  its  assets  could  be  squan- 
dered or  mismanaged  until  they  would  fetch  but  a  sixth 
or  a  tenth  of  their  nominal  worth.  Over  and  above  the 
assets,  there  was  the  contingent  or  reserve  liability  of 
shareholders  upon  their  stock,  equal,  if  all  collected,  to 
the  highest  amount  of  circulation  a  bank  might  lawfully 
put  out. 

Sir  Leonard  Tilley,  finance  minister  in  the  government 
of  the  time,  made  the  prior  lien  of  note  holders  a  central 
feature  of  his  proposals  for  revision.  Objection  to  the 
change  was  offered  by  the  Opposition  on  the  old  score  that 
the  preference  of  note  holders  enhanced  the  danger  of 
depositors'  runs.  With  the  banks  now  willing  to  take 
the  risk — asking  for  it,  in  fact — the  objection  had  lost 
most  of  its  weight.  It  was  provided  in  the  act  to  amend 
the  bank  act,  to  which  the  royal  assent  was  given  May 
7,  1880,  and  which  was  to  become  effective  July  i,  1881, 
"that  the  payment  of  the  notes  issued  by  any  such  (char- 
tered) bank  and  intended  for  circulation,  then  outstand- 
ing, shall  be  the  first  charge  upon  the  assets  of  the  bank 
in  the  case  of  its  insolvency  "     (43  Vic,  c.  22,  s.  12.) 

In  increasing  to  $20,000,000  the  quantity  of  Dominion 
notes  for  which  cover  of  but  25  per  cent  in  specie  and 


National     Monetary     Commission 

guaranteed  debentures  of  the  Dominion  needed  to  be 
kept,  the  ulterior  purpose  of  the  government  was  to 
expand  this  form  of  non-interest-bearing  debt,  so  soon  as 
might  be,  to  the  new  Hmit  allowed  by  law.  To  serve' this 
purpose,  the  banks,  which  had  been  issuing  notes  for  $4 
each  since  they  were  deprived  of  their  $1  and  $2  note  cir- 
culation in  187 1,  were  now  restricted  in  their  issue  privi- 
leges to  notes  for  $5  and  multiples  of  that  sum.  Further 
to  facilitate  the  injection  of  more  legal  tenders  into  the 
country's  currency,  it  was  enacted  that  every  bank  when 
making  payments  should  pay,  if  the  payee  so  desired,  any 
due  sum  up  to  $50  in  Dominion  notes  for  $1  or  for  $2 
each.  The  proportion  of  Dominion  notes  which  banks 
were  obliged  to  keep  in  their  reserves  was  increased  from 
usually  half  and  not  less  than  one-third  to  not  less  than  40 
per  cent.  Being  but  incidental  to  the  government's 
Dominion  note  policy,  already  approved  by  the  house, 
these  clauses  provoked  less  criticism  than  if  they  had 
stood  alone.  Along  with  the  other  amendments  and  ad- 
ditions to  the  bank  act,  recommended  by  the  ministry, 
they  were  passed  with  practically  no  debate. 

Chief,  perhaps,  of  these  other  provisions  was  that  b}^ 
which  the  form  of  the  monthly  return  became  fuller  and 
more  detailed.  Henceforth  separate  report  was  to  be 
made  of  loans  from  or  deposits  made  by  other  banks  in 
Canada,  secured;  loans  from  or  deposits  made  by  other 
banks  in  Canada,  unsecured,  and  of  the  corresponding 
items  on  the  assets  side;  of  Dominion  securities,  of  other 
government  securities,  of  loans  to  corporations  and  of 
loans  to  municipal  corporations,  of  real  estate  other  than 
bank  premises,  and  of  mortgages  on  real  estate  sold  by 


History    of    Banking    in     Can  ad 


a 


the  bank.  Another  suggestion,  derived  from  the  experi- 
ence of  1879,  Isd  to  the  exemption  from  liabiHty  on  bank 
shares  of  persons  holding  stock  as  executors,  guardians, 
administrators,  or  trustees,  if  the  representation  were  de- 
clared in  the  bank's  books.  Recourse  in  such  cases  was 
reserved  against  the  estate  and  funds  held  in  trust.  The 
term  for  which  a  bank  might  hold  real  property,  not 
needed  as  bank  premises,  was  limited  to  seven  years  from 
the  time  the  property  was  acquired.  Legislation  of  1879, 
which  required  that  contracts  for  sale  of  bank  shares 
should  specify  the  numbers  of  the  shares,  having  proved 
impracticable  of  enforcement,  was  repealed. 

Such  sections  of  the  bank  act  as  dealt  with  loans  upon 
bills  of  lading  and  warehouse  receipts  were  expanded  and 
considerably  improved.  Finally,  clearly  to  distinguish 
credit  establishments  recognized  by  the  Dominion  from 
private  ventures — some  of  them  of  questionable  credit- 
worthiness— the  use  of  the  title  "bank"  by  others  than 
chartered  banks  was  made  a  misdemeanor. 

Three  years  after  the  first  general  revision,  or  in  1883, 
the  government  came  to  the  conclusion  that  the  penalty 
of  charter  forfeiture  provided  as  sanction  for  certain  pro- 
hibitions of  the  bank  act  was  too  severe.  Accordingly, 
money  penalties  were  established  for  a  number  of  infrac- 
tions in  punishment  for  which  the  government  would  be 
reluctant  to  deprive  a  bank  of  its  existence.  Every  day's 
delay  after  the  time  set  for  the  annual  dispatch  of  the 
list  of  its  shareholders  subjected  the  bank  in  default  to  a 
fine  of  $50,  Against  note  issue  in  excess  of  paid-up 
capital  stock  a  fine  of  $100  was  provided  for  issue  of  less 
than  $20,000  beyond  the  limit;  one  of  $1,000,  for  $20,000 

123 


National     Monetary     Commission 

to  $100,000;  of  $5,000,  for  $100,000  to  $200,000;  and  of 
$10,000  for  $200,000  or  more  of  excess.  Neglect  to  keep 
40  per  cent  of  the  reserve  in  Dominion  notes  cost  $250 
for  each  offense;  failm-e  to  transmit  the  monthly  return 
within  twenty  days  of  the  end  of  the  month,  $50  for  each 
day's  delay.  For  infraction  of  the  clauses  (sees.  40,  43, 
46,  and  51)  of  the  bank  act  prohibiting  loans  upon  real 
estate,  the  bank's  own  stock  and  the  like,  a  fine  not  to 
exceed  $500  was  provided  for  each  offense.  To  the  form 
of  the  monthly  return  were  added  headings  for  the  amount 
of  the  rest  or  reserve  fund  and  the  rate  of  the  last  divi- 
dend. Further  to  guard  against  misapprehensions  by  the 
uninformed  public,  the  use  of  the  titles  banking  com- 
pany, banking  house,  banking  association,  banking  insti- 
tution, or  banking  agency  by  persons  or  firms  not  working 
under  the  bank  act  was  made  a  misdemeanor  except  the 
phrase  "not  incorporated"  were  added  to  the  title. 

The  multiplication  of  bank  charters  all  but  ceased  with 
the  close  of  the  year  1874.  I^  the  seven  years  1 875-1 88 1 , 
only  two  new  incorporations  were  passed  by  Parliament; 
for  neither  one  of  these  projects  were  the  promoters  able 
to  find  the  capital.  But  the  improvement  in  business 
conditions  which  began  to  be  perceptible  late  in  1879, 
presently,  under  the  impulses  provided  by  the  new 
protective  tariff,  extensive  railway  construction  and  the 
rapid  development  of  the  province  of  Manitoba,  took  the 
form  of  an  active  expansion  which  lasted  well  into  1883. 
This  improvement  served  again  to  stimulate  the  organi- 
zation of  additional  banks.  Thirteen  new  charters  were 
granted  between  1882  and  1886 — four  each  in  1882  and 
1884,  three  in   1883,  and  two  in   1886.     Eight  of  these 

124 


History    of    Banking     in     Canada 

charters  were  forfeited  in  time  for  non-user  within  the 
term  prescribed  by  the  several  acts.  Of  the  five  banks 
which  did  start  but  two  survived  the  year  1894.  Mean- 
while reductions  of  capital  by  some  six  of  the  banks, 
amounting  in  all  to  $4,070,000,  four  failures,  and  two 
liquidations  left  the  capital  at  the  end  of  1889  at 
$60,057,235,  $72,000  less  than  four  years  before.  The 
highest  amount  reported  at  the  end  of  any  year  was  in 
1885 — $61,763,279 — when  41  banks  were  reporting,  as 
compared' to  36  in  1879  ^^'^  3^  in  1889.  The  business  of 
these  institutions,  however,  showed  substantial  growth, 
deposits  by  the  public  having  increased  by  85,  circulation 
by  50,  total  liabilities  by  63,  and  total  assets  by  42  per 
cent.  On  the  whole,  a  considerable  advance  in  practice 
appears  to  have  marked  the  decade.  The  lessons  of 
1 876-1 879  were  fairly  fresh  in  mind;  the  soundness  and 
security  of  business  offering  was  given  more  attention 
than  in  the  days  when  expansion  was  accounted  an  end 
in  itself.  The  application  of  borrowed  funds  became  a 
point  for  minuter  inquiry,  and,  as  a  rule,  the  banks  less 
frequently  discovered,  too  late  to  be  of  much  help,  that 
they  had  been  finding  the  price  of  real  estate,  plant,  or 
other  fixed  investment.  The  increase  of  branches  con- 
tributed also  to  the  stability  and  strength  of  the  banks. 
Seven  of  them,  for  example,  had  agencies  in  Manitoba 
when  the  land  boom  collapsed  in  1882.  So  serious  were 
the  losses  there,  not  by  reason  of  participation  of  their  own 
in  the  inflation  of  land  values,  but  because  of  the  thor- 
oughness with  which  the  whole  commercial  community 
had  been  infected  with  the  speculative  virus,  that  three 
out   of  the   seven   Winnipeg    managers   were   dismissed. 

S.  Doc.  332.  61-2 9  125 


National     Monetary     Commission 

Bad  debts  which  would  have  swamped  local  banks,  per- 
haps for  all  time,  were  taken  care  of  by  the  Canadian 
banks  which  suffered  them  without  other  outward  sign 
than  reductions  of  capital,  smaller  additions  to  rest 
account,  or  lower  dividends  upon  their  stock. 

Of  the  banks  which  failed  in  this  period,  the  Exchange 
Bank  of  Canada,  domiciled  in  Montreal,  went  down  the 
first.  Chartered  in  1872,  it  had  called  up  the  whole  of 
$1,000,000  authorized  capital  by  June,  1875.  In  August, 
1879,  its  position  became  such  that  it  had  to  suspend  pay- 
ment, though  only  for  a  month.  Half  its  capital  was 
written  off  in  1881,  the  directors  admitting  losses  to  the 
amount  of  $341,000.  After  this  untoward  episode,  the 
directors  appear  to  have  engaged  in  the  effort  to  bolster 
the  standing  of  their  bank  by  extensive  trading  in  its 
stock.  A  twelvemonth  before  bankruptcy  stock  fetched 
as  high  as  $179  a  share  of  $100  par.  For  reasons  that  the 
government  never  made  satisfactorily  plain,  the  bank, 
more  than  half  of  whose  stock  was  owned  by  prominent 
Conservatives,  got  help  from  the  government  in  the 
spring  of  1883,  in  the  sum  of  $300,000.  Probably  there 
was  abundant  truth  in  the  criticism  of  the  Opposition  that 
the  bank  was  a  political  bank,  and  an  example  of  the 
disasters  awaiting  a  political  bank.  Apart  from  that, 
the  management  was  both  unscrupulous  and  unsound. 
Indeed,  the  managing  director  was  discovered  himself  to 
be  owing  the  bank  $226,000  when  it  failed  September  15, 
1883.  A  note  issue  of  $380,218,  government  deposits  of 
more  than  $300,000,  and  public  deposits  (many  of  them 
attracted  by  rates  considerably  above  the  market)  rising 
$1,600,000    were    the    principal    items    of    liabilities    for 

126 


History   of    Banking    in     Canada 

$2,430,000  at  the  time  of  the  final  suspension.  By  virtue 
of  the  priority  accorded  such  claims,  the  notes  were  paid 
in  full,  or  rather  payment  could  be  had  in  full,  within 
two  months  of  the  suspension.  The  discount  upon  this 
paper,  suffered  by  those  who  sold  it  in  the  street,  was 
never  reported  as  higher  than  10  per  cent.  To  other 
creditors,  even  with  the  help  of  all  that  could  be  collected 
upon  the  double  Uability  of  shareholders,  the  dividends 
were  only  66X  P^r  cent. 

A  worse  outcome  awaited  the  creditors,  other  than 
note  holders,  of  the  Maritime  Bank  of  the  Dominion  of 
Canada,  whose  head  office  was  at  St.  John,  New  Bruns- 
wick. From  the  time  of  its  organization  in  1872  to  1883- 
84,  nearly  $600,000  of  its  resources  were  sunk  in  a  series 
of  more  or  less  speculative  operations,  most  of  them 
unduly  large  advances  to  a  few  favored  firms  or  individuals. 
For  this  period  of  its  existence  it  was  in  a  great  measure 
a  one-man  bank.  Though  reorganized  in  1 884,  on  a  capital 
reduced  to  $247,000  and  placed  in  new  bands,  the  bank 
seems  still  to  have  followed  the  course  which  its  experience 
roundly  condemned.  By  1887  its  overdue  debts  amounted 
to  $650,000,  more  than  half  of  this  owing  by  bank- 
rupts. A  sum  exceeding  twice  or  thrice  its  capital  had 
been  put  by  the  bank  into  certain  lumber  accounts,  for 
the  payment  of  which  the  sponsor  was  really  but  one 
concern.  To  the  end  of  prolonging  its  existence,  the 
management  resorted  to  the  plan  of  kiting  sterling  bills. 
A  week  before  the  bank  failed,  in  March,  1887,  it  had 
$205,000  on  deposit  by  the  Province  of  New  Brunswick 
and  $70,735  of  Dominion  funds,  among  total  liabilities 
of  about  $1,410,000.     The  two  governments  were  suc- 

127 


National     Monetary     Commission 

cessful  in  suits  to  enforce  the  crown  priority,  the  law  in 
New  Brunswick  being  more  favorable  to  the  Crown  than 
in  Quebec,  where  like  litigation  begun  by  the  Dominion 
against  the  Exchange  Bank  had  failed.  Other  creditors, 
apart  from  note  holders,  received  10.6  per  cent  of  the 
amount  of  their  claims.  The  note  holders,  though  two 
years  passed  before  the  operation  was  complete,  were 
paid  the  face  of  their  claims  in  full,  the  amount  outstand- 
ing at  failure  being  $314,000. 

By  the  Exchange  Bank  failure,  public  creditors  lost 
close  to  $690,000,  exclusive  of  interest;  by  that  of  the 
Maritime  Bank  at  least  $750,000.  From  the  two  bank 
failures  which  occurred  in  Ontario  in  August  and  Novem- 
ber, 1887,  the  public  loss  was  less  than  $15,000.  The  first 
of  these  bankruptcies  was  committed  by  the  Bank  of 
London  in  Canada,  first  established  in  1883,  and  soon 
involved  by  a  speculative  president  in  a  variety  of  pre- 
carious ventures,  among  them  a  loan  company  under  his 
control  which  later  became  insolvent.  Both  note  holders 
and  other  creditors  were  paid  in  full,  and  more  than 
$80,000  upon  the  $241,000  paid-up  stock  returned  to  the 
proprietary.  In  winding  up  the  Central  Bank  of  Canada, 
also  chartered  in  1883  and  bankrupt  in  November,  1887, 
it  was  necessary  to  collect  the  double  liability  from  the 
holders  of  the  stock.  With  this  help,  notes  were  redeemed 
at  par  and  claims  of  other  creditors  at  99^3  percent.  The 
history  of  this  bank  was  one  of  discreditable  practice, 
scandalous  mismanagement,  and  more  or  less  dishonest 
diversion  of  the  bank's  resources  to  the  benefit  of  an  inner 
clique. 


128 


History    of    Banking     in     Canada 

The  Pictou  Bank,  having  suffered  large  losses  through 
the  failure  of  some  of  the  principal  debtors,  went  into 
voluntary  liquidation  in  1887,  and  after  discharging  all  its 
debts,  distributed  among  its  shareholders  $68,000  odd  upon 
a  capital  of  $232,000. 

The  second  example  of  voluntary  liquidation  was  pro- 
vided by  the  Federal  Bank.  Incorporated  in  1872,  the 
bank  had  gradually  increased  its  capital  to  practically 
$3,000,000.  Its  management  was  enterprising,  ambitious, 
and  inclined  somewhat  to  scoff  at  the  conservative  policies 
pursued  by  other  and  older  concerns.  One  of  the  devices 
to  which  the  management  resorted  was  the  formation  of 
a  subsidiary  company  for  the  purpose  of  lending  upon  the 
bank's  own  stock  and  of  supporting  the  market  for  its 
shares.  So  well  did  this  "little  machine"  work  for  a 
time  that  the  $1,500,000  new  capital  issued  in  1883  was 
floated  at  a  premium  of  40  per  cent.  All  of  the  new 
capital  and  $250,000  more  disappeared  in  1885,  when  the 
stock  was  reduced  by  act  of  parliament  to  $1,250,000. 
The  year  before,  in  July,  losses  in  Michigan  lumber  deals, 
lockups  in  Manitoba,  and  the  operations  of  the  machine 
having  crippled  its  resources,  the  bank  was  saved  from 
suspension  only  by  the  help  of  $2,000,000  lent  for  a  brief 
season  by  other  banks.  The  new  manager  then  appointed 
struggled  along  until  the  fall  of  1887,  when  the  stock  of 
the  Federal  Bank,  never  high  in  the  public  confidence 
since  the  disclosures  of  1883,  fell  below  par.  Withdrawals 
of  deposits  and  redemption  of  notes  for  a  total  of  $1 ,632,000 
occurred  in  the  last  two  months  of  1887  and  the  first  of 
1888.  Called  into  consultation  upon  the  Federal's  case, 
bankers  of  Toronto  decided  to  advance  enough  cash  to 

I -'9 


National    Monetary     Commission 

pay  off  the  liabilities  of  the  bank,  provided  it  were 
wound  up  forthwith  with  open  doors.  With  the  failures 
of  the  Central  and  London  banks  fresh  in  men's  memories, 
the  step  was  probably  a  wise  one.  It  meant,  to  be  sure, 
an  advance  of  some  $2,700,000  at  a  time  when  reserves 
were  particularly  low,  but  it  also  meant,  or  at  least  so 
bankers  believed,  escape  from  something  like  a  panic  and 
calls  for  considerably  larger  amounts  of  cash  before  the 
uneasiness  roused  by  another  bank  failure  could  be 
allayed.  The  estate  of  the  bank  proved  sufficient,  not 
only  to  repay  the  helping  banks  but  also  to  permit  a 
substantial  dividend  to  shareholders. 

In  the  twenty-three  years,  1 867-1 889,  the  sum  total  of 
losses  suffered  by  the  holders  of  shares  in  Canadian  banks, 
whether  by  reductions  of  capital,  voluntary  liquidation, 
failures,  or  contribution  upon  the  double  liability,  was  not 
far  short  of  $23,000,000.  Were  reductions  of  rests  or  the 
sums  appropriated  for  losses  out  of  profits  to  be  included 
the  total  of  investors'  losses  would  be  still  higher.  But 
notwithstanding  the  failure  of  10  banks  and  the  with- 
drawal, for  cause,  of  8  others  from  the  field,  the  loss  of 
principal  inflicted  upon  the  creditors  of  the  banks  in  this 
period  was  not  more  than  $2,000,000,  no  matter  what  the 
nature  of  such  creditors'  claims. 


130 


History    of    Banking     in     Canada 


VI. — Bank  Act  Revision  of  1890. 

The  ultimate  security  of  the  Canadian  bank  note  cir- 
culation had  been  put  beyond  question,  in  all  but  the 
most  exceptional  circumstances,  by  the  legislat'on  of 
1880,  which  made  the  note  holder's  claim  a  prior  lien.  But 
the  bank  disasters  of  1883  and  1887  had  shown  that  there 
could  be  a  serious  interruption  of  the  immediate  conver- 
tibility, directly  the  issuer  of  the  notes  had  failed.  Neither 
the  Exchange  Bank's  notes  nor  those  of  the  Central  Bank 
were  subjected  to  discount  greater  than  10  per  cent  in 
the  time  between  failure  and  the  beginning  of  payment, 
but  in  the  two  years  and  more  which  passed  before  the 
liquidator  was  ready  to  redeem  its  paper,  those  of  the 
Maritime  Bank,  fetched  as  little  at  one  time  as  40  per 
cent  of  their  face.  And  in  exceptional  circumstances, 
even  the  ultimate  security  was  not  all  that  could  be  de- 
sired- Some  part  of  the  outstanding  issues  of  banks  go- 
ing into  voluntary  or  involuntary  liquidation — that  part 
which  was  not  presented  within  the  stipulated  time — 
had  been  affected  by  the  clauses  in  the  winding-up  acts 
passed  for  such  banks  which  permitted  the  liquidators 
or  the  liquidators'  trustee,  after  a  term  of  years  and  due 
notice,  to  distribute  among  shareholders  such  sums  as 
had  been  reserved  for  the  redemption  of  notes  outstand- 
ing. It  had  been  found  that  not  all  the  notes  of  a  failed 
or  otherwise  liquidating  bank  could  be  called  in  within 
any  set  term, 

131 


National     Monetary     Commission 

Still  another  cause  for  complaint  was  to  be  found  in 
the  circumstance  that  bank  notes  did  not  circulate  at 
par  in  all  parts  of  the  country.  Notes  ordinarily  were 
subject  to  a  discount  equal  at  least  to  the  domestic  ex- 
change on  the  place  where  they  were  payable,  when  offered 
in  places  remote  from  that  of  issue.  When  a  branch 
office  of  the  promissor  was  in  the  neighborhood,  the  notes 
could  be  used  in  making  payments  to  such  a  branch  and 
hence  had  better  standing.  But  although  the  number  of 
offices  had  nearly  trebled  between  1869  and  1889,  there 
were  but  402  offices  of  chartered  banks  in  the  whole  Do- 
minion. Being  a  frequent  annoyance,  the  discount  for 
geographical  reasons  constituted  no  inconsiderable  griev- 
ance. 

A  fourth  objection  to  the  bank  act,  as  Sir  Francis 
Hincks  had  framed  it  and  Sir  Leonard  Tilley  left  it,  was 
the  comparative  ease  of  the  terms  upon  which  a  charter 
could  be  obtained.  The  increase  of  small  banks,  or  of 
banks  started  by  persons  of  small  responsibility,  had  been 
productive  of  financial  episodes  for  which  the  community 
had  small  relish.  Even  the  stanchest  champions  of  com- 
petition were  agreed  that  the  paid-up  capital  required  of 
nev/  organizations  should  be  increased. 

Finally,  as  in  previous  discussion  about  banking  legis- 
lation, advocacy  of  bond-secured  circulation  was  not 
lacking.  Among  the  most  eonspicuous  supporters  of  pro- 
posals to  import  the  system  of  regulation  adopted  in  the 
United  States  were  the  president  and  some  of  the  di- 
rectors of  the  Bank  of  Montreal.  The  Gazette  of  that 
city  presented  through  1889  long  arguments  in  favor  of 


132 


History    of    Banking    in     Canada 

the  plan,  mainly  because  of  the  security  and  uniformity 
of  value  it  would  give  the  country's  currency. 

The  banks,  on  their  side,  began  to  prepare  for  revision 
as  early  as  December,  1888.  One  measure  contrived  to 
keep  notes  at  par,  however  far  they  might  be  from  the 
place  of  issue,  was  the  completion  in  1889  of  arrange- 
ments by  most  of  the  banks  under  which,  working  gen- 
erally in  pairs,  one  bank  took  up  at  face,  in  its  own 
neighborhood,  such  notes  of  the  other  as  might  be  pre- 
sented for  redemption.  Another  step,  which  eventually 
led  to  the  organization  of  the  Canadian  Bankers'  Asso- 
ciation, was  the  decision  jointly  to  work  out  and  to  pre- 
sent to  the  ministry  certain  suggestions  for  reform.  One 
of  the  most  significant  and  far-reaching  of  these  was  the 
establishment  of  a  safety  fund,  calculated  to  prevent  dis- 
count whatsoever  on  the  notes  of  a  suspended  bank. 

The  bankers  and  the  minister  of  finance,  then  the  Hon. 
George  E.  Foster,  met  in  Ottawa  January  25,  1890,  and 
on  February  11  and  12.  What  the  government  proposed 
to  do  in  respect  of  revision  was  not  communicated  to 
the  bankers  at  the  first  meeting,  but  an  expression  of 
views  was  invited  upon  the  questions  of  making  the  bank 
act  a  permanent  statute,  of  preventing  the  discount  on 
the  notes  of  a  solvent  but  distant  bank,  of  preventing 
discount  on  the  notes  of  a  bank  no  matter  what  the 
issuer's  condition,  of  restricting  the  circulating  privileges 
of  a  bank,  say,  to  60  or  70  per  cent  of  its  paid-up  stock 
or  to  the  average  of  the  past  three  years,  of  requiring 
the  banks  to  hold  fixed  proportions  of  their  liabilities  in 
cash,  and  of  requiring  a  larger  paid-up  capital  for  new 
banks. 


133 


National    Monetary    Commission 

In  order  to  prevent  the  discount  upon  notes  of  a  solvent 
but  distant  bank,  the  bankers  proposed  that  banks  be 
obHged  to  maintain  that  which  most  of  them  had  aheady 
voluntarily  arranged,  namely,  the  redemption  of  their 
notes  in  a  number  of  centers  sufficient  to  insure  their  cir- 
culation at  par  the  country  through.  This  was  fairer, 
they  thought,  than  to  compel  each  bank  to  accept  the 
notes  of  all  other  banks;  under  the  suggested  plan 
the  burden  of  redemption  would  fall  on  the  bank  which 
had  the  benefit  of  circulation.  To  prevent  discount  upon 
notes  of  a  suspended  bank,  there  was  submitted  to  the 
minister's  consideration  the  project  of  a  safety  fund,  later 
enacted  into  law,  and  the  suggestion  that  liquidators 
should  deposit  with  the  Crown,  before  the  final  distribu- 
tion of  surplus  assets,  enough  to  redeem  any  notes  the 
books  of  the  banks  might  show  as  still  outstanding. 
Objection  to  further  restriction  of  circulating  privileges 
was  offered  on  the  ground  that  the  business  of  many  of 
the  banks  was  of  a  sort  to  which  large  though  fluctuating 
amotmts  of  circulation  were  well  nigh  indispensable. 
There  was  a  possibility  of  working  needless  hardship 
were  rights  of  issue  restricted  to  a  fixed  percentage  of 
capital,  while  if  the  limit  imposed  were  the  average  of 
three  years,  some  banks  would  be  unable  to  meet  the 
annual  expansion  in  the  demand  for  notes. 

The  chief  argument,  however,  was  directed  against  the 
suggested  requirement  of  a  fixed  reserve.  Even  con- 
ceding that  some  of  the  Canadian  banks  had  been  sailing 
too  close  to  the  wind  in  the  matter  of  reserves,  it  was  held 
that  a  reserve  is  no  reserve  if  it  may  not  be  used  when 
needed.     The    bankers    contended    that    in    the    United 


134 


H  is  t  ory  of    Banking    in     Canada 

States,  where  the  law  fixed  the  least  proportion  of  cash 
compared  to  Uabilities  a  bank  might  carry,  the  rule  was 
all  too  frequently  honored  by  its  breach,  and  that  it  was 
a  fruitful  source  of  violent  fluctuations  in  interest  rates 
at  the  financial  centers.  Worse  than  all  else,  the  fixed 
reserve  was  unsuited  to  Canadian  conditions. 

Wherever,  as  in  Canada,  a  borrowing  customer  is  ex- 
pected to  bank  with  but  one  bank,  the  bank,  having 
granted  the  customer  a  line  of  credit,  assumes  a  tacit 
obUgation  to  meet  his  demands  for  credit  to  the  amount 
of  the  grant.  Multiply  such  an  obligation  by  thousands, 
as  a  bank  with  many  branches  must  do,  and  it  becomes 
clear  that  the  bank  is  more  or  less  in  duty  bound  to  find 
and  to  advance  large  sums  at  times  impossible  exactly  to 
foresee.  Unusual  conditions  of  trade  or  finance  or  even 
exceptional  weather  could  conceivably  necessitate  an 
expansion  of  liabilities,  such  as  is  usually  coincident  with 
an  expansion  of  assets  in  modern  banking,  which  would 
reduce  the  proportion  of  reserve  below  the  minimum 
fixed  by  law.  In  such  cases,  the  bankers  argued,  the 
freedom  of  action  would  be  hampered,  and  the  efiiciency 
of  the  country's  institutions  of  credit  impaired,  to  no  good 
purpose.  Further,  the  obligation  to  maintain  a  fixed 
reserve  would  grievously  and  injuriously  weaken  their 
power  to  cope  with  situations  such  as  the  difficulties  of 
the  Federal  Bank  had  brought  about.  The  finance  min- 
ister, however,  was  obdurate.  From  his  decision  to  insist 
upon  this  radical  innovation  the  bankers  appealed  to  the 
cabinet.  Partly  by  argument,  partly  by  none  too  closely 
veiled  a  threat  to  make  the  question  a  political  issue,  the 
privy  council  was   induced   to   overrule  the   minister  of 

135 


National     Monetary     Commission 

finance.     The  proposals  for  bank-act  revision  he  submitted 
to  parliament  carried  no  provision  for  a  fixed  reserve. 

In  the  house  of  commons  two  other  details  of  his 
original  project  were  either  modified  considerably  or 
abandoned  altogether.  One  was  the  proposal  of  a  com- 
pulsory external  audit,  to  be  conducted  by  nominees  of 
the  shareholders,  the  results  of  which  should  be  commu- 
nicated to  the  shareholders  at  their  annual  meetings  and 
to  the  minister  of  finance.  To  this  it  was  objected  that 
an  auditor  could  not  be  expected  accurately  to  ascertain 
the  character  and  value  of  a  bank's  discounts — the  key 
to  its  whole  position — and  that  consequently  a  favorable 
report  from  an  auditor  would  be  no  guaranty  that  the 
condition  of  a  bank  was  sound.  The  shareholders'  audit, 
therefore,  was  rejected.  The  other,  and  subsequently 
modified  proposal,  was  one  to  the  effect  that  a  return 
should  be  made  each  year  of  the  dividends  unclaimed  for 
five  years,  and  of  balances  in  respect  of  which  no  transac- 
tion had  occurred  or  on  which  no  interest  had  been  paid 
for  five  years.  Together  with  the  amounts  involved,  the 
names  and  last-known  addresses  of  the  persons  to  whom 
these  sums  were  due,  and  the  place  and  time  of  their  last 
transaction  were  to  be  set  forth  in  the  return,  and  sums 
not  claimed  within,  three  years  after  the  first  return  in 
which  they  were  reported  were  to  be  paid  to  the  minister 
of  finance  for  the  public  uses  of  the  Dominion,  saving  the 
right  of  the  person  entitled  to  any  sum  to  recover  it  on 
proper  proof  of  claim.  The  effort  exactly  to  copy  for 
Canada  provisions  more  or  less  common  to  the  bank  law 
of  India,  some  of  the  Australian  colonies,  and  Natal  failed 
in  the  form  first  proposed,  but  the  banks  were  obliged 

136 


History    of    Banking    in     Canada 

each  year  to  report  to  the  government  the  amount  of 
balances  and  dividends,  unclaimed  and  dormant,  for  five 
years  preceding,  and  all  the  other  details  which  the  minis- 
ter had  desired.  As  it  happened,  therefore,  the  revision  of 
the  bank  act  under  Doctor  Foster  was  considerably  closer 
to  his  own  description  than  he  at  first  intended — "to 
keep  the  existing  system,  but  to  improve  it,  obviate  the 
objections  and  difficulties,  and  establish  new  safeguards." 
First  of  the  improvements  was  the  establishment  of  a 
safety  fund — the  bank  circulation  redemption  fund,  it  was 
styled  in  the  act — to  prevent  discount  upon  the  notes  of  a 
failed  bank  between  the  time  the  failure  happened  and 
that  at  which  the  notes  could  be  redeemed.  As  originally 
constituted,  and  lodged  in  the  keeping  of  the  minister  of 
finance  and  receiver-general  of  the  Dominion,  this  fund 
was  to  be  made  up  from  contributions  of  the  several  banks 
enjoying  issue  privileges,  equal  each  to  2^  per  cent  upon 
their  average  circulation  in  the  year  1890-91,  and  to 
a  further  2^  percent  upon  their  average  circulation  in  the 
year  1891-92.  Thereafter  it  was  to  be  adjusted  annu- 
ally so  that  it  would  be  equal  to  5  per  cent  of  the  average 
circulation  of  the  contributing  banks,  as  shown  by  the 
monthly  return  of  notes  outstanding  in  the  twelvemonth 
preceding  the  30th  of  June,  the  average  being  calculated, 
however,  on  the  greatest  amount  outstanding  during  the 
month  and  not  upon  what  might  be  in  circulation  at  the 
end  of  the  month.  "The  bank  circulation  redemption 
fund  *  *  *  /'it  was  provided  by  section  54  of  the 
act  (53  Vic.,c.  31),  "shall  be  held  for  the  following  pur- 
poses and  for  no  other,  namely:  In  the  event  of  the  sus- 
pension by  the  bank  of  payment  in  specie  or  Dominion 

137 


National     Monetary    Commission 

notes  of  any  of  its  liabilities  as  they  accrue,  for  the  pay- 
ment of  the  notes  then  issued  or  reissued  by  such  bank 
and  intended  for  circulation,  and  interest  thereon;  and 
the  minister  of  finance  and  receiver-general  shall,  with 
respect  to  all  notes  paid  out  of  the  said  fund,  have  the 
same  rights  as  any  other  holder  of  the  notes  of  the  bank." 
The  last  clause,  of  course,  related  to  the  note  holder's 
private  lien. 

No  payment  was  to  be  made  out  of  the  fund,  however, 
unless  the  liquidator  of  the  bank  originally  responsible 
for  the  notes  should  fail  to  make  arrangements  for  their 
redemption  within  two  months  of  the  bank's  suspension. 
But  when  occasion  should  arise  to  use  the  fund,  payments 
were  to  be  made  from  it,  irrespective  of  the  amount 
contributed  by  the  bank  on  whose  behalf  the  payment 
might  be  made.  When  payments  should  exceed  the 
contribution  of  such  a  bank,  other  issuing  banks  could  be 
called  upon  to  make  good  the  amount  of  the  excess,  but 
not  in  sums  greater  in  any  one  year  than  i  per  cent  of 
their  average  circulation  for  that  year.  Such  contribu- 
tions were  to  be  returned  to  the  banks  making  them,  pro 
rata  to  their  amount,  in  case  recovery  of  the  whole  or  any 
part  were  obtained  from  the  failed  bank's  estate.  Fur- 
ther clauses  permitted  the  return  of  its  contribution  to 
the  liquidator  of  a  bank  in  process  of  winding  up,  directly 
it  was  clear  that  adequate  provision  had  been  made  for 
its  notes,  and  enabled  the  minister  of  finance  to  enforce  by 
suit  the  payment  of  any  sum  due  by  a  bank  under  the 
regulations  governing  the  fund.  The  precise  terms  of  the 
bank  act  of  1890  as  amended  in  1900  and  consolidated  in 
1906  are  printed  in  full  in  Appendix  II. 

138 


History    of    Banking    in     Canada 

Significant  as  were  the  creation  of  machinery  by  which 
the  chartered  banks  became  joint  guarantors  of  each 
one's  issue  of  notes,  and  the  psychological  effect,  due  to 
this  change,  upon  the  standing  of  the  bank-note  circu- 
lation, practical  consequences  of  at  least  equal  importance 
were  brought  about  by  the  provisions  for  the  payment  of 
interest  upon  a  failed  or  suspended  bank's  notes.  Directly 
default  upon  any  of  its  liabilities  was  committed  by  a 
bank,  the  act  provided,  its  notes  intended  for  circulation 
should  bear  interest  at  the  rate  of  6  per  cent  per  annum 
until  such  time  as  the  liquidator,  or  other  proper  official, 
published  notice  of  his  readiness  to  redeem  them.  Should 
he  fail  so  to  announce  his  readiness,  or,  having  published 
notice,  fail  to  redeem  notes  as  they  were  presented,  they 
were  to  bear  interest  for  such  further  time  as  passed 
before  they  were  redeemed  out  of  the  safety  fund.  It 
was  in  this  manner  that  in  Canada  the  paper  of  a  failed 
bank  became  worth  more  in  some  circumstances,  and 
never  less  in  any,  than  the  paper  of  a  going  concern.  In 
practice,  moreover,  not  one  dollar  has  ever  been  paid 
from  the  bank  circulation  Redemption  Fund  in  the 
redemption  of  failed  bank's  notes.  "  The  notes  of  such 
banks  failed  since  1890  have  all  been  met  in  the  ordinary 
course  of  winding  up,  without  resort  to  this  interesting 
provision  of  the  bank  act."" 

To  the  end  of  doing  away  with  the  discount  upon  the 
notes  of  solvent  but  distant  banks,  the  ministry  and 
Parliament  made  obligatory  the  maintenance  of  arrange- 
ments similar  to  those  already  begun  by  many  of  the 

a  Letter  of  T.  C.  Boville,  Esq.,  deputy  minister  of  finance,  under  date 
of  May  25,  1909. 


139 


National     Monetary     Commission 

banks  of  their  own  motion.  In  requiring  the  banks, 
generally,  to  insure  the  circulation  of  all  their  notes  at 
par  in  any  and  every  part  of  Canada,  the  act  specifically 
commanded  the  establishment  of  agencies  of  redemption 
and  payment  of  notes  at  the  commerical  center  of  each 
province — Halifax,  St.  John,  Charlottetown,  Montreal, 
Toronto,  Winnepeg,  and  Victoria.  Obedience  to  the 
specific  mandate  of  this  section  (sec.  55)  has  sufficed  to 
effect  execution  of  the  general  injunction.  At  the  same 
time,  in  forcing  notes  more  quickly  back  upon  the  issuing 
bank,  it  has  served  beyond  question  as  a  potent  corrective 
of  any  tendencies  to  inflation  of  the  circulation  which  the 
disappearance  of  all  doubt  about  its  security  and  con- 
vertibility may  have  brought  into  play.  Whether  from 
real  concern  or  in  a  spirit  of  heckling,  the  Opposition  had 
made  much  in  the  debate  of  the  possible  weakening  of 
motives  for  redemption  and  the  likely  loss  of  one  of  the 
most  important  safeguards  peculiar  to  the  traditional 
scheme  of  regulation. 

The  third  and  last  of  the  major  changes  affecting  cir- 
culation repealed  the  statute  of  limitations  so  far  as  it 
affected  the  notes  or  deposits  of  banks  which  might 
become  insolvent  or  go  into  liquidation  under  a  general 
winding-up  act.  Moneys  of  this  character  payable  by 
the  liquidator  and  remaining  unpaid  for  three  years  after 
insolvency  was  committed  or  winding  up  began,  or  remain- 
ing unpaid  at  the  time  of  winding  up,  if  that  were 
sooner  finished,  had  henceforth  to  be  paid  to  the  minister 
of  finance,  who  was  to  hold  them  for  the  uses  of  the 
Dominion,  saving  the  rights  of  the  owners  of  the  unclaimed 
deposits  or  holders  of  unredeemed  notes.     The  govern- 

140 


History    of    Banking     in     Canada 

merit  by  this  provision  also  gained  what  slight  advantage 
there  might  be  from  notes  lost  or  destroyed,  while  for 
holders  of  notes  current  in  1890  or  thereafter  the  cer- 
tainty of  collecting  the  face  of  their  claims  was  perma- 
nently assured.  At  the  same  time  the  contributors  to 
the  safety  fund  were  protected  from  claims  for  redemp- 
tion which  might  be  repudiated  by  the  estate  of  the 
original  promissor  on  the  ground  that  the  time  within 
which  they  ought  to  be  presented  had  expired. 

To  provide  the  security  of  a  larger  paid-up  capital,  the 
amount  upon  which  a  new  bank  might  begin  business 
was  increased  to  $500,000  subscribed  and  $250,000  paid 
up.  And  the  better  to  satisfy  the  public  and  the  gov- 
ernment that  the  foundation  was  real,  it  was  stipulated 
that  no  bank  should  issue  notes  or  begin  business  until 
$250,000  of  its  capital  should  have  lain  on  deposit  with 
the  minister  of  finance  for  at  least  four  weeks,  and  such 
longer  period  as  might  elapse  until  the  issue  of  a  certifi- 
cate from  the  treasury  board.  Such  a  certificate  was  to 
issue  only  in  case  the  treasury  board  were  satisfied  that 
the  new  organization  had  complied  with  all  the  pertinent 
provisions  of  the  bank  act,  and  only  within  one  year  from 
the  date  the  bank's  charter  was  passed. 

The  clauses  pertaining  to  loans  upon  warehouse  receipts 
and  bills  of  lading  were  once  more  recast  and  the  pro- 
visions as  to  loans  intended  to  aid  in  the  manufacture  of 
goods  considerably  extended.  The  marked  peculiarity  of 
the  provisions,  both  as  to  warehouse  receipts  and  bills 
of  lading,  and  as  to  loans  to  "manufacturers"  consisted 
in  this,  that  the  banks  might  not  take  the  security  or 
document  transferring  the  title  to  goods,  wares,  or  mer- 

S  Doc   332    61-2 -10  141 


National     Monetary     Commission 

chandise,  except  they  acquired  such  security,  or  a  written 
agreement  that  such  security  would  be  given,  at  the  time 
of  the  negotiation  of  the  bill,  note,  or  debt  for  which  the 
security  was  a  pledge.  Due  formalities  being  observed, 
the  bank  taking  documents  for  the  commodities  con- 
cerned acquired  a  lien  prior  to  the  claim  of  the  unpaid 
vendor.  For  the  purposes  of  the  bank  act  the  word 
"manufacturer"  was  defined  as  including  "maltsters,  dis- 
tillers, brewers,  refiners,  and  producers  of  petroleum,  tan- 
ners, curers,  packers,  canners  of  meat,  pork,  fish,  fruit,  or 
vegetables,  and  any  person  who  produces  by  hand,  art, 
process,  or  mechanical  means  any  goods,  wares,  or  mer- 
chandise." Apart  from  the  things  usually  understood  as 
goods,  wares,  and  merchandise,  the  phrase  was  defined  as 
further  including  "timber  deals,  boards,  staves,  saw  logs, 
and  other  lumber,  petroleum,  crude  oil,  all  agricultural 
produce  and  other  articles  of  commerce. ' '  As  first  brought 
down,  the  bill  permitted  loans  on  the  security  given  by 
any  person  engaged  as  a  wholesale  manufacturer  or  ' '  pro- 
ducer." For  fear  that  "producer"  might  be  held  to 
include  the  farmer,  whose  general  credit  depended  on  the 
visible  possession  of  divers  chattels,  such  as  grain,  cattle,^ 
and  implements,  and  because  assignment  of  these  under 
the  form  for  such  transfer  would  not  become  notorious 
like  a  chattel  mortgage,  the  word  "producer"  was  struck 
out.     In  their  amended  form  the  clauses  read : 

"Sec.  74.  The  bank  may  lend  money  to  any  person 
engaged  in  business  as  a  wholesale  manufacturer  of  any 
goods,  wares,  and  merchandise  upon  the  security  of  the 
goods,  wares,  and  merchandise  manufactured  by  him  or 
procured  for  such  manufacture. 


History    of    Banking     in     Canada 

"2.  The  bank  may  also  lend  money  to  any  wholesale 
purchaser  or  shipper  of  products  of  agriculture,  the  forest, 
and  mine,  or  the  sea,  lakes,  and  rivers,  or  to  any  wholesale 
purchaser  or  shipper  of  live  stock  or  dead  stock,  and  the 
products  thereof,  upon  the  security  of  such  products  or 
of  such  live  stock  or  dead  stock  and  the  product  thereof. 

"3.  Such  security  may  be  given  by  the  owner  and  may 
be  taken  in  the  form  set  forth  in  Schedule  C  to  this  act, 
or  to  the  like  effect;  and  by  virtue  of  such  security  the 
bank  shall  acquire  the  same  rights  and  powers  in  respect 
to  the  goods,  wares,  and  merchandise,  stock  or  products 
covered  thereby,  as  if  it  had  acquired  the  same  by  virtue 
of  a  warehouse  receipt.'^ 

"Sec.  76.  If  goods,  wares,  and  merchandise  are  manu- 
factured or  produced  from  the  goods,  wares,  and  mer- 
chandise, or  any  of  them,  included  in  or  covered  by  any 
warehouse  receipt,  or  security  given  under  section  74  of 
this  act,  while  so  covered,  the  bank  holding  such  ware- 
house receipt  or  security  shall  hold  or  continue  to  hold 
such  goods,  wares,  and  merchandise  during  the  process 

«  Following  is  the  form  given  in  Schedule  C; 

In  consideration  of  an  advance  of dollars,  made  by  the  (name 

of  bank)  to  A.  B.  for  which  the  said  bank  holds  the  following  bills  or  notes 
(describe  fully  the  bills  or  notes  held,  if  any),  the  goods,  wares,  and  mer- 
chandise metioned  below  are  hereby  assigned  to  the  said  bank  as  security 

for  the  payment,  on  or  before  the day  of  the  said  advance,  together 

with  interest  thereon  at  the  rate  of per  cent  per  annum  from  the 

day  of (or  of  the  said  bills  and  notes  or  renewals  thereof  or 

substitutions  therefor,  and  interest  thereon,  or  as  the  case  may  be). 

This  security  is  given  under  the  provisions  of  section  74  of  "  the  bank 
act,"  and  is  subject  to  all  the  provisions  of  the  said  act. 

The  said  goods,  wares,  and  merchandise  are  now  owned  by and 

are  now  in possession,  and  are  free  from  any  mortgage,  lien,  or  charge 

thereon  (or  as  the  case  may  be),  and  are  in  (place  or  places  where  goods 
are),  and  are  the  following;    (particular  description  of  goods  assigned). 

Dated  at ,  i8 

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National     Monetary     Commission 

and  after  the  completion  of  such  manufacture  or  produc- 
tion with  the  same  right  and  title  and  for  the  same  pur- 
poses and  upon  the  same  conditions  as  it  held  or  could 
have  held  the  original  goods,  wares,  and  merchandise." 

Apart  from  the  four  main  changes  and  the  legislation 
respecting  secured  loans  now  reviewed,  the  revision  of 
1890  was  mostly  devoted  to  points  of  minor  detail.  In 
one  such  clause,  there  was  enacted  a  declaration  of  the 
priority  of  the  Crown  as  creditor  of  an  insolvent  bank, 
already  a  prerogative  by  the  common  law,  in  provinces 
where  the  common  law  obtained,  but  one  not  recognized  by 
Quebec  courts,  construing  the  civil  law,  in  the  suit  brought 
by  the  Dominion  against  the  estate  of  the  Exchange  Bank. 
The  notes  being  always  the  first  claim,  it  was  now  provided 
that  any  amount  due  the  government  of  Canada  in  trust 
or  otherwise  should  be  the  second  charge  on  the  assets  of 
an  insolvent  bank ;  any  sum  due  governments  of  the  prov- 
inces, a  third  charge.  Another  amendment  changed  the 
qualification  of  directors  in  respect  of  stock  holdings,  by 
stipulating  that  they  should  own  certain  amounts  of  paid-up 
rather  than  merely  subscribed  stock,  namely,  $3,000  when 
the  paid-up  capital  was  less  than  $1,000,000;  $4,000  when 
it  was  between  $1,000,000  and  $3,000,000;  and  $5,000 
when  it  was  more  than  $3,000,000.  The  requirements  as 
to  directors  were  perhaps  relaxed  in  this,  that  henceforth 
only  the  majority  of  a  board  needed  to  be  British  subjects. 

The  increase  or  decrease  of  capital  stock  was  permitted 
to  shareholders  acting  by  by-law  passed  in  general  meeting, 
though  such  by-laws  were  not  to  become  effective  till 
approved  by  the  treasury  board.     Banks  were  required  to,' 
build  up  their  rests  or  surpluses  to  30  per  cent  of  the  paid- 

144 


History   of    Banking    in     Canada 

up  stocks  before  distributing  dividends  of  more  than  8 
per  cent  in  any  one  year.  The  hability  of  all  banks  upon 
deposits  or  dividends  declared  and  payable  was  continued 
indefinitely,  notwithstanding  any  statute  of  limitations. 
The  term  prior  to  a  suspension  during  which  the  liability 
of  the  owner  of  shares  in  a  bank  which  subsequently  fails, 
cannot  be  evaded  by  sale,  was  extended  from  thirty  to 
sixty  days.  The  use  of  divers  titles,  such  as  bank,  bank- 
ing house,  banking  company,  by  persons  not  authorized 
thereto  by  the  bank  act  was  forbidden  altogether.  Exten- 
sion of  undue  or  fraudulent  preference  to  creditors  became 
punishable  by  imprisonment  not  to  exceed  two  years; 
the  making  of  willfully  false  or  deceptive  returns  or  state- 
ments, by  imprisonment  not  to  exceed  five  years.  Offenses 
against  the  bank  act,  among  which  was  the  unauthorized 
use  of  the  title  bank,  were  penalized  by  fines  not  exceeding 
$i,ooo  and  imprisonment  for  five  years,  or  both  at  the  dis- 
cretion of  the  court.  For  the  comparatively  mild  penal- 
ties against  overissue,  provided  by  Sir  Leonard  Tilley, 
Doctor  Foster  now  substituted  fines  which  were  exceed- 
ingly severe.  For  issue  in  excess  of  the  paid-up  capital, 
less  than  $i,ooo,  the  fine  became  the  amount  of  such 
excess;  for  an  overissue  of  $i,ooo  to  $20,000,  $1,000;  for 
one  of  $20,000  to  $100,000,  $10,000;  of  $100,000  to 
$200,000,  $50,000;  and  for  an  overissue  of  more  than 
$200,000,  a  fine  of  $100,000  was  to  be  imposed. 

The  special  provisions  relating  to  the  banks  under  royal 
charter  and  to  the  Banque  du  Peuple  {en  commandite) 
were  renewed.  The  only  noteworthy  contrast  between 
the  position  of  these  banks  and  those  with  ordinary  char- 
ters, was  the  limitation  of  the  note  issue  of  the  Bank  of 


145 


National     Monetary     Commission 

British  North  America  and  of  the  Banque  du  Peuple  to 
75  per  cent  of  their  respective  paid-up  stocks.  For  banks 
of  Canadian  origin  and  subject,  or  likely  shortly  to  be  sub- 
ject, to  the  jurisdiction  of  the  Dominion,  the  corporate 
life  was  continued  till  July  i,  1901. 

In  the  shape  to  which  it  was  wrought  by  the  painstaking 
able,  and  thorough  revision  of  1890,  the  bank  act  of  the 
Dominion  has  stood  with  but  little  change  in  form  and 
none  in  its  underlying  principles  for  the  past  eighteen 
years.  What  new  provisions  have  been  added  to  the 
statute  have  been  prompted  by  the  purpose  to  facilitate 
rather  than  hinder  the  growth  of  the  banks,  or  by  the  deter- 
mination to  round  out  and  to  perfect  the  new  measures 
whereby  the  circulation  has  been  safeguarded  since  1891. 

One  at  least  of  the  Canadian  banks  having  opened 
offices  in  another  British  colony  where  the  pound  sterling 
was  the  monetary  unit,  a  law  of  1899  (chap.  14)  permitted 
the  issue  of  notes  intended  for  circulation  in  denominations 
of  I  pound  sterling  or  multiples  of  the  pound  sterling.  It  was 
stipulated,  however,  that  such  notes  should  not  be  issued 
in  Canada  (notes  for  $5  being  the  lowest  permissible  there) 
and  that  they  should  bear  legibly  across  their  face  the 
name  of  the  place  where,  in  the  colony  for  which  they  were 
intended,  they  would  be  redeemed  at  par.  In  1904  similar 
branches  having  been  established  in  other  British  colonies 
where  a  dollar  of  different  value  than  the  Canadian  dollar 
was  the  monetary  unit,  banks  were  permitted  to  issue,  but 
only  in  such  colonies,  notes  for  $5,  and  multiples  of  $5, 
redeemable  at  par  in  the  dollars  recognized  in  the  place  of 
issue  as  the  legal  tender  and  the  money  of  account.  (4 
Edw.  VII.,  chap.  3.) 

146 


History     of    Banking    in     Canada 

The  third  of  these  measures  suggested  by  the  expand- 
ing business  of  the  banks  was  not  passed  until  1908. 
For  some  years,  however,  a  need  for  it  had  appeared,  in 
the  closeness  with  which  the  circulation  of  a  number  of 
the  banks,  notwithstanding  large  increases  of  paid-up 
capital,  had  approached  the  legal  limit  in  the  active 
season  of  autumn.  It  was  now  enacted  that  in  the  crop- 
moving  time  of  any  year — from  October  i  to  January  31 
of  the  following  year — a  bank  might  issue  notes  in  excess 
of  its  unimpaired  paid-up  capital  to  the  amount  of  15 
per  cent  of  the  sum  of  its  paid-up  capital  and  rest  account 
(surplus)  as  shown  by  the  monthly  return  to  the  govern- 
ment. (7-8  Edw.  vii,  chap.  7.)"  As  price  for  the  privilege 
of  overissue,  any  bank  taking  advantage  of  the  amend- 
ment was  required  to  pay  interest  upon  the  excess,  at  a  rate 
not  to  exceed  5  per  cent  per  annum,  to  be  fixed  by  the  gov- 
ernor in  council.  Whatever  is  realized  by  way  of  such 
interest  accrues  to  the  general  revenue  of  the  Dominion. 
In  the  month  of  October,  1908,  five  banks  reported  the 
greatest  amount  of  their  notes  in  circulation  at  $700,000 
more  than  their  capital  stock ;  in  November  like  figures  for 
six  banks  showed  an  excess  of  $788,710,  but  in  December 
all  but  four  banks,  with  an  excess  of  $304,000,  were  again 
within  the  limit  of  normal  issue,  and  these  four  reported 
circulations  less  than  their  paid-up  capitals  throughout  the 
month  of  January,  1909.  At  the  highest  amount  out- 
standing in  November  there  was  still  a  reserve  power  of 
issue,  independently  of  emergency  privileges,  of  $6,865,692, 
shown  by  a  comparison  of  the  total  notes  in  circulation 
to  the  paid-up  stock  of  the  banks. 

a  See  Appendix  111. 

147 


National     Monetary     Commission 


VII. — Amendments  of  1900. 

As  the  time  for  the  decennial  revision  of  1900  drew 
near,  there  began  among  the  Canadian  chartered  banks  a 
movement  intended  to  bring  about,  if  possible,  the  exten- 
sion to  its  logical  conclusion  of  the  principle  recognized 
in  1890  by  the  establishment  of  the  fund  for  the  redemp- 
tion of  failed  banks'  notes.  The  initial  advance  had  been 
to  make  the  banks  the  joint  guarantors  of  each  others' 
notes;  the  next  step,  it  was  believed,  should  be  to  give 
the  banks  a  measure  of  joint  control  over  the  issue,  circula- 
tion, withdrawal  and  destruction  of  notes.  The  possi- 
bilities of  the  original  suggestion  developed  under  dis- 
cussion; it, is  not  too  much  to  say  that  in  a  union  for 
insuring  the  security  of  their  circulation  there  finally 
appeared  the  beginnings,  at  any  rate,  of  common  effort 
toward  encouraging  and,  if  need  be,  enforcing  the  gen- 
eral observance  of  high  standards  of  banking,  the  main- 
tenance of  adequate  reserves,  the  prevention  of  frauds 
in  the  issue,  and  the  administration  of  insolvent  banks' 
estates  to  the  best  interest  both  of  their  creditors  and 
of  those  who  held  their  shares. 

As  the  instrument  of  these  purposes,  the  bankers 
suggested  the  Canadian  Bankers'  Association,  a  volun- 
tary organization  formed  in  1892,  for  the  common  benefit 
and  protection  of  the  banks.  Chartered  banks  were  its 
members;  its  associate  members,  bank  officers  and  bank 
clerks.     In   meetings   of   the   association   members   were 

148 


History     of    Banking     in     Canada 

represented  by  their  chief  executives  for  the  time  being; 
between  meetings,  the  interests  of  the  organization  were 
watched,  and  its  affairs  managed,  by  an  executive 
council  whose  Uberty  of  action,  subject,  of  course,  to 
approval  of  the  association  at  the  annual  meetings,  was 
as  wide  as  could  be  desired.  In  the  session  of  1900 
Parliament  gave  this  voluntary  association  the  status  of 
a  public  corporation  in  a  special  act  and  with  the  declared 
object  "to  promote  generally  the  interests  and  efficiency 
of  bank  officers  and  the  education  and  training  of  those 
contemplating  employment  in  banks,  and  for  such  pur- 
poses, among  other  means,  to  arrange  for  lectures,  dis- 
cussions, competitive  papers  and  examinations  on  com- 
mercial law  and  banking,  and  to  acquire,  publish,  and 
carry  on  the  Journal  of  the  Canadian  Bankers'  Associa- 
tion.    (63-64  Vic,  c.  93.) 

Power  was  accorded  the  association  to  establish  sub- 
sections, to  establish  a  clearing  house  for  banks  in  any 
place  of  the  Dominion,  and  to  make  rules  and  regulations 
for  the  conduct  of  clearing  houses,  but  with  the  provisos 
that  memibership  in  a  clearing  house  should  be  voluntary, 
that  members  of  such  organizations  should  have  equal 
voice  in  making  the  rules  and  regulations,  and  that  no 
such  provisions  should  become  effective  until  approved  by 
the  treasury  board.  "  The  objects  and  powers  of  the  asso- 
ciation," declared  the  act  of  incorporation,  "shall  be  car- 
ried out  and  exercised  by  the  executive  council,"  or  under 
norms  fixed  by  the  council.  Fourteen  chief  executives 
of  chartered  banks,  and  the  president  and  vice-president 
of  the  association,  as  elected  at  the  annual  meetings,  made 
up   the   executive   council.     Resolutions,   by-laws,    rules, 

149 


National    Monetary     Commission 

and  regulations  passed  by  the  executive  council  had  force 
only  until  approved  at  the  next  meeting  of  the  associa- 
tion and  none  thereafter  if  not  approved.  By-laws  affect- 
ing clearing  houses  were  of  no  effect  until  approved  by 
the  treasury  board. 

Further  powers  and  functions  were  confirmed  to  the 
association  in  the  measure  by  which  the  several  charters 
were  continued  to  191 1 — the  bank  act  itself.  (63-64 
Vic,  c.  26.)"  There  the  means  were  provided  for  taking 
away  the  control,  or,  at  any  rate,  the  unsupervised  control 
of  a  suspended  bank  from  its  officers  directly  a  default 
occurred.  Under  such  by-laws  as  it  might  adopt  the 
association  was  authorized  to  appoint  some  competent 
person  a  "curator,"  to  supervise  the  property  and  con- 
duct of  a  suspended  bank.  His  duty  was  to  "assume 
supervision  of  the  affairs  of  the  bank"  and  arrangements 
for  the  payment  of  outstanding  notes.  Generally,  he  was 
to  have  the  powers  and  to  take  the  steps  necessary  or 
expedient  to  protect  the  creditors  and  shareholders  of 
the  bank  and  to  conserve  and  properly  to  dispose  of  its 
assets.  Toward  these  purposes  the  curator  was  given 
access  to  all  books  and  papers,  documents  and  accounts, 
and  was  to  remain  in  office  until  removed,  or  until  the  bank 
resumed  business,  or  until  a  liquidator  had  been  appointed 
for  the  purpose  of  winding  it  up.  Under  the  act  of  1 890,  as 
under  that  of  1871,  a  bank  might  suspend  payment  for 
ninety  days  consecutively  or  within  the  year  without  be- 
coming insolvent  or  forfeiting  its  charter.  The  presence  of 
a  curator  directly  any  bank  suspended  became  especially 

oSee  Appendix  II  for  the  Bank  Act  as  revised  in  1890,  amended  in  19CX), 
and  consolidated  in  1906. 

150 


History    of    Banking    in     Canada 

desirable  as  precaution  against  note  issue  during  suspen- 
sion. Resort  to  this  practice,  which  would  enable  favored 
depositors  to  convert  their  claims  into  prior  liens,  had 
been  prohibited  in  previous  legislation  only  by  the  clauses 
against  giving  undue,  unfair,  or  fraudulent  preferences. 
Now,  the  law  forbade  it  specifically  by  a  fine  of  $2,000  or 
imprisonment  for  seven  years,  or  both.  Henceforth  a 
bank  once  suspended  had  no  right  to  resume  business 
tmtil  the  curator  had  given  his  consent  in  writing  or  to 
issue  notes  again  until  authorized  by  the  treasury  board 
so  to  do.  The  removal  of  a  curator,  no  less  than  his 
powers  and  duties,  was  subjected  to  such  rules  as  the 
association  might  prescribe.  His  remuneration  as  fixed 
by  the  association  was  made  a  charge  upon  the  assets  of 
the  bank  to  the  supervision  of  which  he  might  be  assigned. 
Besides  its  duties  in  respect  of  suspended  banks,  the 
Bankers'  Association  was  given  more  or  less  inquisitorial 
powers  as  against  banks  which  were  going  concerns.  It 
was  permitted  at  any  meeting  to  make  by-laws,  rules, 
and  regulations  respecting  "  the  supervision  of  the  making 
of  the  notes  of  the  banks  which  are  intended  for  circula- 
tion, and  the  delivery  thereof  to  the  banks,  the  inspection 
of  the  disposition  made  by  the  banks  of  such  notes,  the 
destruction  of  the  notes  of  the  banks,  and  the  imposition 
of  penalties  for  the  breach  or  nonobservance  of  any  by- 
law, rule,  or  regulation  made  by  virtue  of  this  section." 
But  before  any  by-law  or  rule  concerning  either  the 
appointment,  powers,  duties,  and  removal  of  a  curator, 
or  the  exercise  of  supervising  privileges  in  respect  of  the 
circulation  could  become  effective,  it  was  stipulated  the 
measure  should  receive  the  approval  of  two-thirds  of  the 

151 


National     M  on  et  ar  y     Commission 

banks  represented  in  the  meeting  at  which  it  was  put  to 
vote,  the  banks  so  approving  having  two- thirds  in  par 
value  of  the  paid-up  capital  represented.  Nor  could  it 
become  effective  then,  except  that  it  was  approved  by 
the  treasury  board,  after  submission  to  every  bank  not  a 
member  of  the  association,  and  opportunity  given  such 
banks  to  be  heard  with  respect  to  the  measure. 

By  way  of  acknowledging  a  tendency,  long  more  or  less 
perceptible,  toward  the  merger  of  the  srhaller,  and  in  a 
great  degree  local  banks  into  the  larger  and  more  heavily 
capitalized  institutions  of  the  system,  parliament  added 
to  the  bank  act  in  1900  a  set  of  general  provisions  per- 
mitting and  regulating  the  merger  of  banks,  upon  agree- 
ment to  that  effect  between  the  shareholders  of  the 
selling  and  the  management  of  the  buying  corporation 
concerned.  The  need  for  special  act  of  parliament  to 
complete  the  bargain  thereafter  disappeared.  The  main 
preliminaries  were  now  reduced  to  a  proposal  of  purchase, 
consent  of  the  holders  of  two-thirds  of  the  shares  of  the 
selling  bank,  and  the  approval  of  the  govemor-in-council 
given  on  recommendation  of  the  treasury  board.  Strict 
precautions  were  established  for  meeting  the  liabilities  of 
the  vendors;  but  the  purchasing  bank  might  execute  the 
agreement  of  sale  under  its  seal  without  special  consulta- 
tion of  its  shareholders,  except  in  the  case  that  the 
merger  involved  an  increase  of  the  buying  bank's  capital 
stock.  ^ 

One  other  change  made  at  this  time  suggested  in  some 
ways  the  proposal  for  a  shareholders'  audit,  which  parlia- 
ment had  refused  to  accept  two  years  before.  No  specific 
mention  of  an  audit  occurred  now,  but  it  was  provided, 

152 


History    of    Banking    in     Can  ad 


a 


while  safeguarding  the  privacy  of  personal  accounts,  that 
the  directors  of  a  bank  should  submit  at  annual  meetings 
such  further  statements,  olher  than  those  presenting  the 
details  already  stipulated  in  the  act,  as  the  shareholders 
might  require  by  by-law  passed  in  any  general  meeting. 
The  specific  prohibition,  on  heavy  penalties,  of  note  issue 
during  suspension  has  already  been  remarked.  Better  to 
adjust  that  rate  to  the  current  market,  the  rate  of  inter- 
est borne  by  a  suspended  bank's  notes  such  time  as  they 
could  not  be  redeemed,  was  reduced  from  6  to  5  per  cent. 
To  protect  the  Dominion  treasury,  amounts  paid  out  of 
the  safety  fund  in  excess  of  the  contribution  of  a  failed 
bank  were  made  to  bear  interest  at  3  per  cent  until  repaid 
out  of  the  estate  to  the  minister  of  finance.  The  limit 
within  which  a  bank  must  dispose  of  real  property,  other 
than  bank  premises,  was  extended  from  seven  to  twelve 
years.  Realty  held  for  a  term  longer  than  twelve  years 
after  it  was  acquired  in  complete  or  partial  satisfaction 
of  a  debt  became  liable  to  forfeiture  to  the  Crown,  but 
only  after  six  months'  notice  from  the  minister  of  finance 
that  the  Crown  proposed  to  claim  the  forfeiture.  Within 
that  half  year  the  bank  could  still  give  good  title  to  the 
property.  Clauses  dealing  with  loans  upon  special  secur- 
ity were  amended  in  favor  of  the  import  trade,  so  that  the 
banks  might  take  warehouse  receipts  or  bills  of  lading  as 
security  for  liabilities  incurred  on  behalf  of  persons  to 
whom  had  been  issued  letters  of  credit.  To  the  impaid 
balances  and  unpaid  dividends  which  were  already  the 
subject-matter  of  an  annual  return  was  added  to  the 
category  of  drafts  and  bills  of  exchange  issued  and  out- 
standing for  more  than  five  years.     Finally,  the  form  of 

153 


National     Monetary     Commission 

the  monthly  statement  of  condition  was  so  amended  as 
to  distinguish  between  deposits  in  Canada  and  elsewhere, 
to  include  the  amount  of  bills  rediscounted  in  the  item  of 
"loans  from  other  banks  in  Canada,  secured,"  and  to 
show  separately  balances  due  to  banks  or  agencies  in 
Canada,  in  the  United  Kingdom,  and  elsewhere.  For 
these  changes  upon  the  liabilities  side  of  the  form  there 
were  corresponding  changes  upon  the  assets  side. 
Headings  also  were  introduced  to  distinguish  between 
call  and  short  loans  in  Canada  and  current  loans  in  Can- 
ada, from  similar  investments  elsewhere. 

The  Canadian  Bankers'  Association,  acting  under  its 
new  charter,  promptly  prepared  a  set  of  by-laws  for 
carrying  out  the  provisions  of  its  incorporation  and  of 
the  bank  act.  As  amended  in  April,  1901,  they  were 
approved  by  the  treasury  board  and  came  into  effect 
according  to  law.  A  copy  of  the  by-laws,  which  include 
a  set  of  uniform  clearing-house  rules,  substantially 
identical  with  those  the  preparation  of  which  had  been 
begun  in  1897,  appears  in  Appendix  VII.  While  the 
document  was  largely  formal  in  character,  there  were 
embodied  in  it  two  groups  of  provisions  in  which  the 
procedure  merely  suggested  by  the  bank  act  was  more 
fully  developed.  One  such  group  was  that  which  deter- 
mined the  fashion  in  which  the  association  should  exer- 
cise its  supervision  over  the  issue  and  circulation  of  notes. 

In  brief,  a  monthly  return  of  circulation,  properly  veri- 
fied, was  required  of  each  chartered  bank  doing  business 
in  the  Dominion,  whether  a  member  of  the  association  or 
not.  The  form  of  the  return  included  separate  headings 
for  the  credit  balance  of  bank-note  accounts  on  the  last 


154 


History    of    Banking    in     Canada 

day  of  the  preceding  month,  inclusive  of  unsigned  notes, 
notes  received  from  printers  during  the  month,  notes 
destroyed  during  the  month,  balance  of  bank-note 
accounts  on  the  last  day  of  the  month,  notes  on  hand, 
whether  signed  or  unsigned,  and  the  notes  in  circulation 
on  the  last  day  of  the  month.  The  form  of  certificate 
setting  forth  the  destruction  of  notes  in  the  period  cov- 
ered by  any  return  called  for  a  statement  of  the  amount 
and  denominations,  and  for  the  attest  or  signature  of 
three  of  the  directors  and  of  the  general  manager  of  the 
reporting  bank.  Neglect  to  send  in  the  report  of  circu- 
lation within  the  first  fifteen  days  of  the  month  succeed- 
ing was  penalized  by  a  fine  of  $50  for  each  day's  delay. 
Upon  the  executive  council  of  the  association  was  con- 
ferred the  power  by  resolution  at  any  time  to  direct  an 
inspection  of  the  circulation  account  of  any  bank.  Fur- 
ther, an  annual  inspection  of  the  circulation  account  of 
every  bank  of  issue  in  Canada  was  provided  for,  and  a 
report  of  the  results  to  the  council,  all  officers  of  banks 
under  inspection  being  obligated  to  give  the  inspector  of 
circulation  such  information  and  assistance  as  he  might 
ask.  It  was  also  required  that  printed  statements  of  the 
circulation  returns  of  all  the  chartered  banks  should  be 
forwarded  each  month  to  the  chief  executive  of  every 
bank  in  the  Dominion.  In  the  practical  conduct  of  this 
scheme  of  inspection  and  verification,  the  returns  of  the 
banks  as  to  new  notes  received  have  been  checked  up 
against  returns  of  notes  delivered  which  the  bank-note 
engravers  have  agreed  to  furnish. 

In  the  clauses  respecting  curators  the  by-laws  directed 
that  the  remuneration  of  the  curators  for  services,  expenses,. 


155 


N  at  ion  al     Monetary     Commission 

and*  disbursements  should  be  fixed  from  time  to  time  by 
the  executive  council.  They  further  directed  that  in 
the  case  of  suspension  of  payment  by  a  bank  and  the 
appointment  of  a  curator  to  supervise  its  affairs,  the 
president  of  the  association  should  also  appoint  a  local 
advisory  board,  selected,  as  far  as  possible,  from  the 
higher  officers  of  banks  situate  in  the  place  of  the  sus- 
pended bank's  head  office.  It  became  the  duty  of  the 
curator  to  advise  with  this  board  from  time  to  time,  and 
to  obtain  the  approval  of  the  board  before  taking  any 
important  step  in  connection  with  his  duties. 

Apart  from  the  supervision  of  circulation  accounts  thus 
established  and  the  more  exact  determination  of  the 
procedure  in  case  of  suspension,  the  Canadian  Bankers' 
Association  does  not  appear  to  have  made  much  effort 
to  develop  the  functions  acquired  or  to  extend  the  field 
of  activity  opened  by  the  legislation  of  1900.  The  report 
of  proceedings  of  the  annual  meeting,  which  had  previ- 
ously been  published  in  the  Journal  of  the  association 
and  the  newspapers  of  the  day  with  a  degree  of  fulness 
which  made  it  practically  complete,  v/as  condensed  in 
1903  to  the  baldest  .sketch.  Reports  of  later  meetings 
were  omitted  from  the  journal  altogether.  The  project 
of  competitive  papers,  discussions,  lectures,  and  exami- 
nations seems,  for  some  years,  at  any  rate,  to  have  been 
abandoned.  Already  in  1903  a  committee,  appointed  for 
the  purposes  of  inquiry,  reported  that  they  "had  failed 
in  arousing  sufficient  interest  to  warrant  proceeding  for 
the  present  with  the  formation  of  an  institute." 

While  it  was  still  a  voluntary  organization  and  not 
yet,  in  a  sense,  a  recognized  organ  of  administration,  the 

156 


History    of    Banking    in     Canad 


a 


association's  efforts  were  exerted  as  far  as  they  might 
be  exerted  properly,  against  careless  or  too  liberal  insol- 
vency legislation,  projects  of  provincial  law  injuriously 
affecting  the  banks,  and  the  incorporation  of  loan  com- 
panies authorized  to  receive  deposits  on  cgurrent  account. 
As  an  organization,  also,  the  association  sought  to  bring 
about  uniformity  in  the  rate  of  interest  paid  upon  deposits 
payable  after  notice  or  in  savings  bank  departments, 
and  the  reduction  of  the  rate  of  interest  paid  by  the  post- 
office  and  government  sayings  banks.  A  system  of  bank 
money  orders  was  devised  and  established  in  an  effort 
to  meet  the  competition  of  the  express  companies  in 
remittance  of  minor  sums.  For  some  time,  but  in  the 
end  to  no  purpose,  the  association  opposed  the  establish- 
ment of  a  branch  of  the  royal  mint  in  the  Dominion. 
In  response  to  a  widespread  demand,  stimulated  by  the 
Yukon  gold  production  and  by  the  growth  of  a  national 
self -consciousness,  the  government  decided  in  1901  to 
appropriate  $75,000  a  year  to  the  construction  and 
up-keep  of  a  mint,  and  by  so  much  to  reduce  the  profit 
by  seigniorage  upon  silver  coin,  the  average  of  which,  in 
the  preceding  decade,  had  been  some  $94,000  a  year. 
On  the  other  hand,  the  association  had  been  successful 
in  efforts  to  induce  the  government  to  prepare,  at  the 
banks'  expense,  to  be  sure,  quantities  of  Dominion  notes 
of  large  denomination,  transferable  only  between  the 
banks  and  intended  for  use  in  settlements  or  for  the 
service  of  their  reserves.  It  is  a  fair  inference  that  not- 
withstanding the  more  informal  procedure  at  meetings 
and  the  measure  of  secrecy  maintained  as  to  the  nature 

S.  Doc.  332,  61-2 II  157 


National    Monetary     Commission 

of  its  activities,  the  efforts  of  the  association  since  1902 
have  been  spent  in  much  the  same  direction  as  before. 

Whether  taken  year  by  year,  or  viewed  as  a  whole,  the 
history  of  the  banks  acting  under  Dominion  charter 
through  the  years  1 889-1 908  presents  no  more  striking 
feature  than  the  extraordinary  growth  of  the  banks  in 
point  of  resources  and  strength.  In  capital  alone  the 
expansion  was  from  $60,289,910  in  December,  1889,  to 
$96,457,573  in  December,  1908;  in  rest  (surplus)  from 
$20,371,332  to  $74,427,630;  in  circulation  from  $33.577, 7oo 
to  $73,058,234;  in  total  deposits,  from  $133,977,011  to 
$722,769,156;  and  in  discounts,  loans,  and  advances, 
from  $170,250,693  to  $546,079,996.  The  details  of  this 
development,  condensed  from  the  monthly  return  to  the 
government  to  a  form  like  that  in  which  statistics  of 
banking  elsewhere  have  been  arranged,  are  presented 
year  by  year  in  Appendix  V.  The  explanation  of  the 
growth,  of  course,  is  to  be  sought  in  the  thousand  and 
one  achievements  of  advance  which  have  marked  the 
economic  movement  of  Canada  the  past  two  decades — 
the  increase  of  product  from  farm  and  forest,  fishery, 
and  mine,  the  systematic  elaboration  of  the  railway  net- 
work, the  rise  of  Canadian  credit  and  the  influx  of  foreign 
and  British  funds,  the  powerful  impulse  given  to  industry 
the  past  ten  years,  the  swift  extension  of  settlement  and 
cultivation  over  the  virgin  wheat  fields  of  the  Northwest, 
the  heavier  immigration  consequent  upon  the  practical 
exhaustion  of  the  free  lands  of  the  United  States,  the 
enormously  larger  trade  stimulated  by  the  growth  of 
buying  power  in  agriculture,   transportation,   and  com- 


158 


History    of    Banking     in     Canada 

merce,  and  the  augmentation  in  every  direction  of  the 
activities  of  exchange.  These  were  large  movements, 
not  yet  anywhere  adequately  described,  except  in  existing 
sources  for  some  future  historian,  and  not  yet,  perhaps, 
sufficiently  remote  wholly  to  be  understood.  But  so  far 
as  can  be  judged  now,  the  forward  movement  of  the  banks 
was  neither  markedly  greater  nor  conspicuously  less  than 
the  general  progress  in  which  they  participated  and 
toward  which  they  helped. 

From  1889  to  1899  the  number  of  banks  remained 
practically  stationary  at  38;  in  the  ten  years  there  was 
scarcely  more  than  $2,000,000  capital  added  to  their 
paid-up  stock.  Rest  accounts,  however,  were  augmented 
by  upward  of  $9,000,000,  and  the  number  of  branches 
within  the  Dominion  from  402  to  663.  The  banks  suc- 
ceeded, moreover,  in  doing  a  considerably  heavier  busi- 
ness upon  but  slightly  enlarged  proprietors'  funds.  The 
proportion  of  capital  and  rest  to  total  liabilities,  46.98 
per  cent  in  1889,  fell  to  27.84  at  the  end  of  1899,  although 
the  net  distribution  by  way  of  dividends  amounted  to  but 
5.17  per  cent  upon  these  funds  as  against  5.65  per  cent 
ten  years  before. 

In  these  figures  are  suggested  two  of  the  most  con- 
spicuous and  closely  related  phases  of  the  banking  move- 
ment in  all  these  later  years — the  fall  in  banking  profits 
measured  by  the  unit  of  service,  and  the  wide  extension 
of  the  territorial  distribution  of  the  banks.  The  explana- 
tion of  both  these  phases,  and  to  no  inconsiderable  extent, 
also,  the  cause  of  them,  is  undoubtedly  to  be  found  in  a 
single  factor — competition.     It  might  be,  indeed  it  fre- 


159 


National     Monetary     Commission 

quently  is  argued,  that  between  a  few  large  banks,  man- 
aged from  two  or  at  most  three  centers,  banks  whose 
executives  are  in  easy  reach  of  each  other  to  arrange 
such  means  to  temper  the  strife  for  business  as  a  monop- 
oHstic  age  might  suggest,  competition  is  a  factor  the 
influence  of  which  may  safely  be  ignored.  And  it  is 
often  pointed  out  that  since  all  banks,  or  practically  all 
banks,  allow  but  3  per  cent  interest  upon  deposits, 
and  generally  charge  6  per  cent  upon  commercial  and 
industrial  loans,  even  in  the  settled  districts  of  the  East, 
there  'is  additional  reason  for  reckoning  competition  a 
myth.  The  fact  is,  however,  that  instead  of  rate  cutting 
in  respect  of  these  particulars,  the  characteristic  competi- 
tion between  Canadian  banks  has  appeared  in  efforts  to 
outdo  each  other  in  the  facilities  offered,  it  may  be  the 
waiver  of  collection  and  agency  charges — thus  sadly 
impairing  the  minor  profits  of  a  bank — or  it  may  be  in 
the  amount  of  accommodation  offered,  the  ease  and  con- 
venience of  access  to  the  source  of  loans  or  office  of  deposit. 
Otherwise,  it  could  not  be  expected  that  from  the  provi- 
sion of  one  office  for  every  11,770  of  population,  the 
banks  would  reduce  the  ratio  to  one  office  for  every 
2,982,  as  they  have  reduced  it  between  1889  and  1908. 
Otherwise,  moreover,  it  would  be  unlikely  that,  with 
combined  capital  and  rest  equal  to  but  20.82  per  cent  of 
their  total  liabihties  in  1908,  as  compared  to  30.32  per 
cent  in  1898  and  46.98  per  cent  in  1889,  they  should  be 
dividing  but  4.81  per  cent  upon  proprietors'  funds  now, 
or  more  than  eight-tenths  per  cent  less  than  they  were 
dividing  in  1889.  To  such  lengths  has  competition  for 
deposits  proceeded,  that  in  latter  years  it  is  not  uncom- 

160 


History    of    Banking     in     Canada 

moil  for  the  older  and  larger  banks  to  establish  new 
branches  for  the  sake  of  $250,000  to  $400,000  in  pros- 
pective deposits  and  the  discount  business  incidental  to 
a  community  with  such  a  store  of  savings,  while  the  newer 
and  smaller  banks  have  been  known  to  open  offices  with 
scarcely  $150,000  of  deposits  and  but  precarious  pros- 
pect of  improvement  in  sight.  Competition  for  deposits, 
in  the  first  instance,  and,  secondarily,  competition  for 
good  chances  to  lend  such  deposits,  has  been  the  main 
cause  for  the  five-fold  multiplication  of  chartered  bank 
offices  in  less  than  twenty  years.  The  same  competition 
has  been  of  potent  influence  upon  the  movement  of  dis- 
count charges  and  interest  rates.  In  all  this  time,  the 
difference  in  discount  rates  between  communities  of  com- 
parable population  and  borrowings,  but  of  different  dis- 
tance from  the  financial  centers,  has  not  exceeded  1% 
or  2  per  cent.  At  the  very  frontier  of  settlement  or 
development,  where  difficulty  of  access,  the  cost  of  main- 
taining an  office,  or  the  small  volume  of  business  avail- 
able make  the  cost  of  banking  service  high,  interest  is 
naturally  charged  at  a  considerably  higher  rate  than 
where  banking  may  be  conducted  at  something  like  a 
normal  expense,  though  the  advance  of  rate  is  seldom 
in  proportion  to  the  enhancement  of  cost.  More  accu- 
rately to  indicate  the  geographical  distribution  of  bank- 
ing facilities  and  the  consequent  advance  toward  a  per- 
fect diffusion  of  the  country's  loan  fund,  there  is  pre- 
sented in  Appendix  IX  a  table  showing  the  increase  of 
branches  in  the  several  provinces  since  1889.  The  num- 
ber in  operation  by  the  several  chartered  banks  since 


161 


National     Monetary     Commission 


confederation,  at  intervals  of  five  years,  is  shown  in  the 
table  herewith: 


1869. 

100 

28 

6 

13 

0 
0 

0 

0 

1874. 

1879. 

1884. 

1889. 

1894. 

1899. 

1904. 

1908. 

148 
39 
II 
27 

0 
4 

I 

0 

188 
45 
13 
34 

8 
4 
3 

0 

174 
SO 
30 
SI 

10 

3 

IS 

2 

231 
60 
32 
47 

6 

9 

13 

4 

263 

102 

29 

S8 

6 
12 
24 

8 

321 

113 

34 

74 

9 

41 
SO 

19 

2 

549 

196 

49 

lOI 

10 
SS 
95 

87 
3 

918 

New  Brunswick 

Nova  Scotia 

Prince    Edward    Is- 
land   

58 
104 

16 

British  Columbia 

103 

Northwest     Territo- 

252 
3 

Yukon.    

All  Canada 

147 

230 

29S 

33S 

402 

S13 

663 

I.  I4S 

1.927 

On  December  31,  1908,  the  1,927  offices  were  in  1,054 
different  places,  as  compared  to  465  offices  in  259  differ- 
ent places  fifteen  years  before.  Apart  from  their  do- 
mestic establishments  the  banks  had  been  steadily  adding 
to  their  offices  and  agencies  abroad.  At  the  end  of  1908, 
these  outposts  had  reached  the  number  of  50,  5  being  in 
Newf oyndland ;  3  in  London,  England;  i  in  France;  i  in 
Mexico;  16  in  the  United  States;  and  24,  the  establish- 
ments of  3  different  banks,  in  Cuba,  Jamaica,  Porto  Rico, 
and  Trinidad. 

No  clearing  house  was  established  in  the  Dominion  until 
1887,  when  the  bankers  of  Halifax  first  organized  to  this 
end.  Prior  to  that  time  the  daily  exchanges  and  settle- 
ments were  effected  by  the  laborious  and  tedious  method 
of  adjustments  between  bank  and  bank.  The  volume  of 
transactions  for  settlement,  of  course,  had  always  been 
smaller  than  what  would  be  expected  of  a  system  of  an 
equal  number  of  banking  offices,  each  under  independent 

162 


History     of    Banking    in     Canada 

control.  The  settlement  between  two  or  between  all  the 
branches  of  the  same  bank,  of  course,  would  be  effected 
in  the  books  of  that  bank,  and  is  so  still,  independently 
of  the  clearing  house.  The  table  of  clearings  presented 
in  Appendix  VIII,  therefore,  furnishes  no  just  basis  for  a 
comparison  of  Canadian  trade  and  finance,  to  the  volume 
of  business  in  a  community  working  with  numerous  local 
banks.  Too  much  is  set  off  in  Canada  before  the  ex- 
changes are  ever  sent  to  the  clearing  house,  to  permit 
the  actual  magnitude  of  the  business  to  appear. 

Following  the  example  of  Halifax,  similar  arrangements 
were  established  in  Montreal  in  1889  and  in  Toronto  and 
Hamilton  in  1893.  .The  clearing  houses  of  Victoria  and 
Vancouver  were  established  in  1898,  that  of  St.  John  in 
1896,  those  of  Ottawa  and  Quebec  in  1901,  and  of  London 
in  1902.  From  the  year  1903,  when  the  statistics  for  all 
these  cities  first  became  complete,  to  1908,  the  increase  of 
clearings  was  from  $2,689,823,000  to  $4,038,808,000. 

For  ten  years,  between  May  16,  1890,  and  May  23, 
1 901,  no  charter'passed  the  Canadian  Parliament  for  the 
incorporation  of  a  new  bank.  The  bill  approved  on  the 
earlier  date,  being  the  first  charter  since  1886,  was  never 
used  by  those  who  obtained  the  grant.  But  with  the  more 
rapid  broadening  of  the  opportunities,  or  what  men  be- 
lieved were  opporttmities,  for  new  ventures  in  the  banking 
field  which  appeared  shortly  after  the  turn  of  the  century, 
applications  for  charters  and  bills  to  grant  them  engaged 
the  attention  of  Parliament  at  practically  every  session. 
Between  1901  and  1908  no  less  than  twenty-one  new  bank 
charters  were  passed,  and  authority  given  for  $54,500,000 
subscribed  stock.     Eight  corporations  out  of  the  twenty- 

163 


National     Monetary     Commission 

one  succeeded  in  raising  the  capital  required  before  they 
might  open  a  bank;  the  authorized  capital  for  these  eight 
amounted  to  $16,000,000.  The  capital  actually  paid  up 
of  the  six  banks  started  since  1901  and  still  doing  business 
was  $6,000,277  on  December  31,  1908.  The  paid-up 
capital  of  $96,457,573,  shown  as  the  total  in  the  report  of 
chartered  banks  on  that  date,  included  $3,000,000  of  a 
bank  in  liquidation.  To  the  extent  of  $23,432,848, 
therefore,  the  increase  of  banking  capital  of  practically 
$30,000,000  effected  in  the  ten  years  1 898-1 908  consisted 
of  sums  called  up  by  the  older  banks,  practically  all  of  it 
issued  at  premiums  to  correspond  to  the  book  values  of 
existing  shares. 

Small  as  were  the  sums  collected  for  new  ventures, 
compared  to  the  contributions  to  older  banks,  the  mere 
number  of  charter  grants  makes  it  difficult  to  believe  that 
anything  in  the  way  of  a  legal  monopoly  of  chartered 
rights  is  maintained  by  the  government  or  parliament  of 
Canada  in  favor  of  the  banks  already  in  existence.  Be- 
tween 1868  and  1880,  as  has  been  seen,  thirty  charters 
were  granted  to  new  projects;  between  1882  and  1888 
thirteen;  between  1890  and  1908,  twenty-two.  The 
total  is  sixty-five ;  the  number  of  Dominion  bank  charters 
not  forfeited  for  nonuser  since  1867  is  thirty-two.  Entry 
to  the  field  of  issue  banking,  it  would  appear,  is  free  in 
Canada  to  whomsoever  cares  to  enter  it,  provided  only 
that  his  standing  is  not  discreditable  and  that  he  or  his 
backers  have  the  cash.  If  the  newcomer,  once  chartered 
and  established,  finds  his  way  beset  with  difficulties,  the 
circumstance  is  to  be  explained,  not  by  any  monopoly 
which  his  older  competitors  enjoy,  but  rather  by  their 

164 


History    of    Banking    in     Canada 

hold  upon  the  confidence  of  their  cHentele,  and  their  pos- 
session of  a  volume  of  business  which  enables  them  to 
serve  their  customers  at  rates  the  profit  in  which,  derived 
from  transactions  of  smaller  bulk,  would  be  consumed  for 
the  most  part  by  expense. 

While  new  banks  were  being  added,  old  names  were 
being  stricken  off  the  Canadian  roll.  One  movement  of 
considerable  significance  has  been  the  merger,  mostly  of 
.the  smaller  banks  or  corporations  to  whose  activity  rather 
narrow  geographical  bounds  had  been  set,  into  institu- 
tions which  avowedly  limit  their  operations  to  nothing 
short  of  the  Dominion,  and  the  international  banking 
relations  which  may  grow  out  of  the  country's  foreign 
trade.  Three  such  banks,  the  Bank  of  British  Columbia 
(first  established  under  royal  charter),  the  Halifax  Bank- 
ing Company  (the  incorporated  successors  of  the  private 
bank  of  issue  founded  in  Nova  Scotia  in  1825),  and  the 
Merchants'  Bank  of  Prince  Edward  Island,  were  taken 
over  by  the  Canadian  Bank  of  Commerce  in  1900,  1903, 
and  1906,  respectively,  in  exchange  for  stock  in  the 
buying  bank.  In  1903  the  Bank  of  Montreal  bought 
the  Exchange  Bank  of  Yarmouth,  in  1905  the  People's 
Bank  of  Halifax,  and  in  1906  the  People's  Bank  of  New 
Brunswick.  The  Western  Bank  of  Canada  was  taken 
over  by  the  Standard  Bank  in  1908.  The  Northern  and 
the  Crown  banks,  chartered,  the  one  in  1903  and  the 
other  in  1902,  joined  forces  under  the  new  name  of 
the  Northern  Crown  Bank  in  1908.  Another  bank,  first 
chartered  by  the  province  of  Prince  Edward  Island,  the 
Summerside  Bank,  was  sold  to  the  Bank  of  New  Bruns- 
wick; the  Commercial  Bank  of  Windsor  (Nova  Scotia), 

165 


National     Monetary     Commission 

to  the  Union  Bank  of  Halifax  (1902).  What  with  an 
earlier  merger,  that  of  the  Union  Bank  of  Prince  Edward 
Island  with  the  Bank  of  Nova  Scotia  in  1883,  failures, 
and  voluntary  liquidation,  the  number  of  corporations 
directed  from  head  offices  in  the  maritime  provinces  has 
been  reduced  in  twenty  years  from  sixteen  or  more  to 
four.  The  St.  Stephens  Bank  and  the  Bank  of  New 
Brunswick  are  the  only  banks  in  the  country,  the  history 
of  which  runs  further  back  than  1900,  which  report  capi-^ 
tals  of  less  than  a  million  dollars  each.  The  St.  Stephens 
Bank,  with  its  paid-up  stock  of  $200,000,  remains  the 
only  surviving  example  of  the  small  local  banks  which 
were  more  or  less  typical  of  the  cre'dit  organization  of 
the  maritime  provinces  for  many  years.  Two  of  the 
banks  domiciled  in  Nova  Scotia  and  one  which  formerly 
had  its  head  office  in  Halifax  have  added  so  much  to 
their  resources  and  so  many  to  their  branches  that  in 
these  particulars  they  present  no  contrast  to  the  banks 
of  widely  extended  operations  characteristic  of  Ontario 
or  Quebec. 

Six  of  the  banks  acting  under  Dominion  charter  have 
failed  since  1889;  two  others,  now  in  process  of  winding 
up,  have  been  obliged  by  heavy  losses  to  withdraw  from 
business,  although,  through  the  help  of  other  banks,  it 
has  been  possible  to  conduct  their  liquidation  with  open 
doors.  The  first  of  the  failures,  attributable  to  ill-advised 
or  incapable  administration  of  the  bank's  lending  re- 
sources, and  first  also  in  point  of  time,  was  that  of  the 
Commercial  Bank  of  Manitoba,  with  its  head  office  in 
Winnipeg,  July  3,  1893.  On  the  date  of  failure  the 
liabiUties  amounted  to  $1,344,269  and  the  nominal  assets 

166 


History     of    Banking     in     Canada 

to  $1,954,167.  Its  note  circulation,'  partly  as  the  result 
of  heavy  withdrawals  by  depositors,  preceding  the  fail- 
ure, had  run  up  to  $419,485,  the  paid-up  capital  being 
then  but  $552,650.  Ultimately  the  depositors  and  other 
creditors,  as  well  as  the  note  holders,  were  paid  in  full. 
Better  to  realize  upon  certain  assets  through  giving  the 
debtors  more  time  than  was  originally  agreed,  the  liqui- 
dator of  the  bank  arranged  with  other  banks,  sometime 
competitors  of  the  Commercial,  for  a  slight  extension  of 
the  period — ^sixty  days  after  suspension — within  which 
redemption  of  all  outstanding  notes  should  have  been 
offered.  Upon  notes  the  redemption  of  .  which  was 
deferred  the  liquidator  continued  to  pay  at  the  rate  of 
6  per  cent.  All  but  two-fifths  of  the  circulation  outstand- 
ing had  been  redeemed  by  the  end  of  September,  and 
all  but  a  fifth  by  the  end  of  November.  The  fact  that 
the  other  banks  accepted  the  notes  of  the  failed  bank 
freely  at  par  relieved  the  public  of  both  inconvenience 
and  concern.  From  the  day  of  suspension  on,  the  notes 
of  the  Commercial  Bank  of  Manitoba  passed  at  the  value 
inscribed  on  their  face.  The  eflficacy  of  the  bank  circu- 
lation redemption  fund  as  a  guaranty  not  only  of  the 
ultimate  security,  but  also  of  the  immediate  converti- 
bility of  bank-note  issues,  thus  established  on  the  occa- 
sion of  its  first  trial,  has  been  demonstrated  time  and 
again,  and  in  respect  of  the  circulation  even  of  such 
fraudulently  looted  concerns  as  the  Banque  Ville  Marie  or 
the  Banque  de  St.  Jean. 

Notwithstanding  a  history  that  ran  back  to  1835, 
and  an  abundant  experience  of  the  mistakes  by  which 
prudent    bankers    might    well    have    been    warned,    the 

167 


National     Monetary     Commission 

Banque  du  Peuple  found  itself  obliged  to  suspend  on  July 
1 6,  1895.  At  first  it  was  hoped  that  resumption  could 
be  undertaken  within  the  statutory  term.  Inquiry  de- 
veloped the  existence  of  overdrafts  owing  by  directors 
and  others  to  more  than  20  per  cent  in  excess  of  the 
bank's  paid-up  stock.  The  general  shareholders  in  this 
bank,  it  will  be  remembered,  were  liable  only  to  the 
amount  of  their  subscriptions.  From  these,  of  course, 
nothing  further  could  be  collected,  and  under  the  terms 
of  a  compromise,  the  reasons  for  which  a*e  somewhat 
obscure,  but  $300,000  were  collected  upon  the  joint,  several, 
and  unlimited  liability  of  the  principal  partners.  Under 
the  prior  lien  the  note  holders — $787,000  in  round  num- 
bers was  the  sum  of  their  claim — obtained  payment  in 
full.  Other  creditors  for  $6,713,000  received  but  75X 
per  cent  and  thus  lost,  over  and  above  interest  and  dis- 
counts accepted  in  anxious  or  precipitate  realization, 
some  $1,660,000. 

Worse  yet,  in  point  of  the  inadequacy  of  the  assets 
involved,  was  the  failure  of  the  Banque  Ville  Marie. 
Criminal  prosecutions  were  undertaken  by  the  Crown 
against  officers  of  this  bank,  and  in  three  of  the  suits  the 
court  took  the  view  that  the  management  had  committed 
gross  frauds,  sending  the  general  manager  and  cashier  to 
the  penitentiary  and  releasing  another  officer  on  sus- 
pended sentence.  The  note  holders  were  paid  in  full,  but 
the  depositors  realized  only  1"]%  per  cent  on  their  claims, 
the  total  liabilities  at  suspension,  July  25,  1899,  being 
$1,951,346.  Another  French  bank,  in  the  administration 
of  which  corruption  and  criminal  fraud  were  revealed  by 
judicial  inquiry,  the  Banque  de  St.  Jean,  failed  April  28,. 

168 


History     of    Banking    in     Canada 

1908 — the  Ville  Marie  had  a  capital  of  $479,620  at  sus- 
pension; this  concern  but  $316,386.  To  the  extent  of 
nearly  $600,000  its  resources  had  been  squandered  upon 
most  precarious  and  unpromising  ventures,  in  great  part 
to  the  personal  speculations  of  the  president.  On  April 
30,  1908,  its  notes  in  circulation  were  $219,334. 

No  loss  was  suffered  by  creditors  on  such  claims,  but 
whether  anything  whatever  is  paid  to  creditors  other  than 
the  government  (the  government  claim  was  $43,016) 
depends  upon  what  success  may  follow  the  efforts  of  the 
liquidator  to  collect  the  double  liability  from  holders  of 
the  stock.  A  number  of  the  shareholders  are  resisting 
the  liquidator  in  the  courts.  The  deposits,  other  than 
government  deposits,  amounted  at  the  time  of  failure  to 
$296,988. 

As  a  consequence  of  loans  to  one  firm  out  of  all  propor- 
tion to  its  own  means,  the  Bank  of  Yarmouth,  one  of  the 
more  or  less  local  banks  domiciled  in  Nova  Scotia,  was 
obliged  to  close  its  doors  March  6,  1905.  A  considerable 
recovery  after  their  failure  from  the  assets  of  the  bank's 
principal  debtors  made  it  possible  to  pay  off  depositors 
as  well  as  note  holders  in  full.  The  sums  involved  were 
not  large  at  the  worst,  the  total  assets  of  the  bank  at  the 
time  of  its  failure,  March  6,  1905,  being  $820,143,  and  its 
liabilities  on  all  scores,  except  capital  stock  ($300,000) 
but  $479,323. 

In  the  spring  of  1908  the  fact  that  the  Banque  de  St. 
Hyacinthe  was  under  large,  advances  to  the  Southern 
Counties  Railway  became  generally  known  and,  in  the 
form  that  the  information  gained  currency,  raised  doubts 
as  to  the  liquid  condition  of  the  bank's  assets.     The  rail- 

169 


National     Monetary     Commission 

way  was  sold  to  the  Delaware  and  Hudson  Company,  the 
money  for  it  paid  into  court.  Pending  the  result  of  cer 
tain  suits  a  considerable  proportion  of  the  bank's  resources 
was  locked  up.  On  June  23  the  bank  was  obliged  to  sus- 
pend payment.  Apart  from  a  capital  stock  of  $331,235, 
it  had  liabilities  at  the  time  of  suspension  of  $1,182,362; 
its  nominal  assets  were  $1 ,580,097 ;  the  notes  in  circulation 
were  about  $250,000.  These,  of  course,  were  promptly 
redeemed;  a  dividend  of  25  per  cent  has  already  been 
paid  depositors,  and  if  the  issue  of  the  pending  litiga- 
tion is  at  all  favorable  to  the  bank,  as  there  is  ground  to 
believe  it  will  be,  it  is  likely  that  the  depositors  will  be 
paid  the  whole  sum  of  their  claims. 

The  record  of  Canadian  bank  mortality  for  recent  years, 
thus  far  set  forth,  has  been  concerned  with  the  troubles  of 
comparatively  small  and  more  or  less  insignificant  mem- 
bers of  the  system.  The  reason  for  this  is  close  at  hand — 
none  but  small  banks  have  failed.  In  point  of  indebted- 
ness involved  or  of  probable  loss  to  the  shareholders,  how- 
ever, two  other  bank  disasters  ef  this  period,  in  neither  of 
which  the  threatened  bank  was  permitted  to  go  to  failure, 
were  more  serious  than  any  yet  detailed.  One  of  these 
was  the  collapse  of  the  Ontario  Bank,  first  organized  in 
1857,  on  October  13,  1906.  A  general  manager,  latei* sen- 
tenced to  the  penitentiary,  had  been  put  in  charge  of  the 
bank  some  years  earlier,  in  the  hope  that  he  would  be  able 
to  restore  to  the  institution  the  prestige  and  resources  lost 
through  the  ill-advised  and  injudicious  administration  of 
the  bank's  assets  under  his  predecessor.  One  way  the  new 
man  set  about  to  compass  this  task  was  to  speculate  with 
the  bank's  funds  and  on  the  bank's  behalf  in  its  own  stock 

170 


History    of    Banking     in     Canada 

and  in  the  shares  and  other  securities  handled  on  the  New- 
York  Stock  Exchange.  In  the  course  of  transactions 
amounting  to  more  than  $100,000,000,  between  1898  and 
1906,  he  incurred  losses  of  $1 ,500,000.  Over  $230,000  was 
lost  in  the  effort  to  support  by  purchase  the  local  market 
for  the  shares  of  the  bank.  Some  $233,000  was  subse- 
quently lost  in  realizing  upon  securities,  bought  in  New 
York.  The  certainty  of  the  bank's  going  into  bankruptcy, 
unless  something  were  done,  became  clear  on  October  12, 
1906.  The  executives  of  the  larger  and  stronger  insti- 
tutions were  unwilling  that  an  estate  with  liabilities  of 
$15,229,685,  and  nominal  assets  of  $17,432,177,  should  be 
liquidated  otherwise  than  with  open  doors.  The  Bank 
of  Montreal  accordingly  agreed  to  take  over  the  assets 
and  assume  the  liabilities  of  the  Ontario  Bank,  on  condi- 
tions that  provided  for  other  banks  standing  part  of  the 
loss  should  the  assets  finally  appear  to  be  less  than  the 
debts.  Nearly  three  years  were  spent  in  winding  up  the 
estate.  The  capital  stock  and  rest  of  $2 ,200,000  were  both 
absorbed  in  spite  of  the  realization  of  92.58  per  cent  upon 
loans  and  overdue  debts  amounting  on  October  12,  1906, 
to  $13,116,000.  Note  holders  were  paid  in  full,  and 
depositors  either  got  the  face  of  their  claims  or  accepted 
instead  the  obligations  of  the  Bank  of  Montreal.  The 
shareholders,  however,  have  been  asked  to  contribute 
$576,000  upon  their  liability,  in  case  of  insolvency,  to  pay 
additional  sums  equal  to  the  par  value  of  their  subscribed 
stock.  Whether  they  do  so  pay  depends  upon  the  issue  of 
suits  now  pending  before  the  courts. 

Established  in  1901,  and  thus  one  of  the  first  of  the 
new  banks  to  be  organized  in  the  latest  period  of  marked 

171 


National     Monetary     Commission 

prosperity,  the  Sovereign  Bank  of  Canada  shortly  acquired 
standing,  or  at  any  rate  attention,  as  one  of  the  most 
aggressive,  energetic,  and  seemingly  successful  of  the 
younger  institutions  in  the  field.  As  the  result  of  sys- 
tematic efiforts  on  the  part  of  its  executive,  efforts  the 
nature  and  ingenuity  of  which  put  them  among  the  most 
diverting  minor  episodes  of  Canadian  bank  promotion 
a  stately  share  of  the  bank's  stock — a  new  issue  of  about 
a  million  and  a  half — was  sold,  partly  to  one  of  the  leading 
financial  houses  of  New  York  and  partly  to  one  of  the 
German  securities  banks.  With  this  help  the  capital  of 
the  Sovereign  was  raised  to  nearly  $4,000,000;  the  rest,  for 
the  stock  was  put  out  at  a  premium,  to  $1,250,000. 
Thenceforward  the  game  of  expansion,  both  in  volume 
of  business  and  in  number  of  offices,  proceeded  even  more 
merrily  than  before.  Events  showed  later  on  that  much 
of  the  borrowers'  business  attracted  to  the  bank  was  of  a 
highly  undesirable  description;  that  in  order  to  make  an 
extraordinary  showing  the  management  had  time  and 
again  accepted  unjustifiable  risks.  Among  the  assets  of 
twenty -five  millions  odd  reported  at  the  end  of  April,  1907, 
from  some  ninety  branches  there  was  paper  so  bad  or  so 
well-nigh  hopelessly  doubtful  as  to  put  the  future  of  the 
bank  and  the  property  of  the  shareholders  into  the  gravest 
kind  of  peril.  A  careful  valuation  of  these  assets  under- 
taken by  experienced  officers  of  another  bank  convinced 
them,  however,  that  by  appropriating  the  whole  of  the 
rest  and  a  million  of  the  capital,  losses  already  or  likely 
to  be  incurred  would  be  amply  covered.  Their  recom- 
mendations were  carried  out. 


172 


History     of    Banking-     in     Canada 

With  a  new  president,  general  manager,  and  inspector, 
and  with  a  number  of  changes  in  the  staffs  of  the  branches, 
the  bank  was  embarked  upon  the  effort  to  conduct  its 
business  along  saner  and  safer,  if  less  enterprising,  lines 
than  before.  But  although  these  changes  gave  the  bank 
a  chance  to  effect  a  reduction  of  five  millions  in  its  total 
liabilities  between  April  and  December,  1907,  they  were 
yet  insufficient  either  to  restore  confidence  in  the  venture 
or  to  keep  the  bank  on  its  feet  as  a  going  concern.  The 
middle  of  January,  1908,  bankers  in  Toronto  and  Montreal 
were  asked  to  consult  upon  the  Sovereign's  plight.  Pri- 
marily to  avoid  a  shock  to  credit,  but  also  to  prevent 
embarrassment  to  numerous  commercial  depositors  and 
discount  customers  at  places  where  the  bank  had  offices, 
twelve  of  the  other  banks  undertook  to  supply  ready  cash 
in  the  sum  of  $3,750,000  to  meet  the  Sovereign's  imme- 
diate needs.  They  also  undertook  to  liquidate  the  bank's 
assets  and  to  assume  its  liabilities.  Such  loss  as  might 
occur  in  the  process  was  to  be  borne  by  the  guaranteeing 
banks  in  proportion  to  the  amounts  respectively  pledged 
by  them  to  the  fund  of  cash.  Involved  in  this  voluntary 
liquidation  were  $18,594,357  of  nominal  assets  and 
$15,544,534  of  liabilities  other  than  capital  stock.  For 
all  purposes  of  the  public  the  branches  of  the  Sovereign 
Bank  became  on  January  18,  1908,  the  offices  of  that 
particular  one  of  the  twelve  guaranteeing  banks  by  which 
they  had  been  assumed  or  to  which  they  had  been  alloted 
for  the  purpose  of  winding  up.  Somewhere  between  half 
and  three-quarters  of  a  million  deficiency  is  not  unlikely 
to  appear  in  the  final  stages  of  the  liquidation.     Such  a 

s.  Doc.  332, 61-2 — 12  173 


National    Monetary     Commission 

sum,  and  considerably  more,  could  be  collected  upon  the 
double  liability  of  solvent  shareholders.  So  far  as  can  be 
judged  now,  therefore,  there  is  small  prospect  of  any  losses 
falling  upon  the  guaranteeing  banks. 


174 


Appendix  I. 
THE  FIRST  DOMINION  BANK  ACT.« 


AN  ACT  Relating  to  banks  and  banking. 

[34  Vict.,  chap,  v.] 

[Assented  to  14th  April,  1871.] 
Whereas,  it  is  desirable  that  the  provisions  relating  to 
the  incorporation  of  banks,  and  the  laws  relating  to  bank- 
ing, should  be  embraced,  as  far  as  practicable,  in  one 
general  act:  Therefore,  Her  Majesty,  by  and  with  the 
advice  and  consent  of  the  Senate  and  House  of  Commons 
of  Canada,  enacts  as  follows: 

I.  The  charters  or  acts  of  incorporation  of  the  several 
banks  enumerated  in  the  schedule  to  this  act  (including 
any  amendments  thereof  now  in  force)  are  continued  as 
to  their  incorporation,  the  amount  of  capital  stock,  the 
amount  of  each  share  of  such  stock,  and  the  chief  place 
of  business  of  each,  respectively,  until  the  first  day  of 
July,  in  the  year  of  our  Lord  one  thousand  eight  hundred 
and  eighty -one,  subject  to  the  right  of  any  such  bank  to 
increase  its  capital  stock  in  the  manner  hereinafter  pro- 
vided; and  as  to  other  particulars  the  said  charters  are 
continued  without  being  subject  to  any  of  the  provisions 
of  this  act,  except  those  contained  in  sections  four,  thirty- 
nine  to  fifty-four,  both  inclusive,  and  sixty  to  sixty-eight, 
both  inclusive,  until  the  first  day  of  July,  in  the  present 
year  of  our  Lord  one  thousand  eight  hundred  and  seventy- 
one  ;  and  from  and  after  the  day  last  mentioned,  the  said 
charters  are  continued,  subject  to  the  provisions  of  this  act, 

a  Acts  of  the  Parliament  of  the  Dominion  of  Canada,  1871.     Ottawa, 
187 1,     pp.  24-47 

175 


National     Monetary     Commission 

until  the  end  of  the  then  next  session  of  Parhament;  and 
from  and  after  the  end  of  such  session  this  act  shall  form, 
and  be  the  charters  of  the  said  banks,  respectively,  until 
the  first  day  of  July,  1881,  and  the  provisions  thereof  shall 
apply  to  each  of  them,  respectively,  and  their  present 
charters  shall  be  repealed,  except  only  as  to  the  matters 
for  which  the  said  charters  are  above  continued  until  the 
day  last  aforesaid. 

2.  The  provisions  of  this  act  shall  apply  to  any  bank  to 
be  hereafter  incorporated  (which  expression  in  this  act 
includes  any  bank  incorporated  by  any  act  passed  in  the 
present  session  or  in  any  future  session  of  the  Parliament 
of  Canada)  whether  this  act  is  specially  mentioned  in  its 
act  of  incorporation  or  not,  as  well  as  to  all  banks  whose 
charters  are  hereby  continued,  but  not  to  any  other,  unless 
extended  to  it  under  the  special  provisions  hereinafter 
made. 

3.  The  capital  stock  of  any  new  bank,  the  amount  of 
each  share,  the  name  of  the  bank,  and  the  place  where  its 
chief  office  shall  be  situate,  shall  be  declared  in  the  act  of 
incorporation  of  any  bank  to  be  hereafter  incorporated. 

GENERAL    REGUI^ATIONS. 

4.  The  bank  may  open  branches  or  agencies  and  offices 
of  discount  and  deposit  and  transact  business  at  any  place 
or  places  in  the  Dominion. 

5.  The  capital  stock  of  the  bank  may  be  increased,  from 
time  to  time,  by  the  shareholders  at  any  annual  general 
meeting,  or  any  general  meeting  specially  called  for  that 
purpose;  and  such  increase  may  be  agreed  on  by  such 
proportions  at  a  time  as  the  shareholders  shall  determine, 
and  rhall  be  decided  by  the  majority  of  the  votes  of  the 
shareholders  present  at  such  meeting  in  person  or  by  proxy. 

6.  Any  of  the  original  unsubscribed  capital  stock,  or  the 
increased  stock  of  a  bank,  shall,  when  the  directors  so 
determine,  be  allotted  to  the  then  shareholders  of  the  bank 

176 


History     of    Banking    in     Canada 

pro  rata,  and  at  such  rate  as  shall  be  fixed  by  the  directors, 
provided  always  that  no  fraction  of  a  share  shall  be  so 
allotted;  and  any  of  such  allotted  stock  as  shall  not  be 
taken  up  by  the  shareholder  to  whom  such  allotment  has 
been  made,  within  three  months  from  the  time  when  notice 
of  the  allotment  has  been  mailed  to  his  address,  may  be 
opened  for  subscription  to  the  public>  in  such  manner  and 
on  such  terms  as  the  directors  shall  prescribe. 

7.  No  bank  to  be  hereafter  incorporated,  unless  it  be 
otherwise  provided  by  its  charter,  shall  issue  notes  or  com- 
mence the  business  of  banking  until  five  hundred  thousand 
dollars  of  capital  have  been  bona  fide  subscribed  and  one 
hundred  thousand  dollars  have  been  bona  fide  paid  up, 
nor  until  it  shall  have  obtained  from  the  treasury  board  a 
certificate  to  that  effect,  which  certificate  shall  be  granted 
by  the  treasury  board  when  it  is  proved  to  their  satisfac- 
tion that  such  amounts  of  capital  have  been  bona  fide 
subscribed  and  paid,  respectively;  and  if  at  least  two 
hundred  thousand  dollars  of  the  subscribed  capital  of  such 
bank  has  not  been  paid  up  before  it  shall  have  commenced 
business,  such  further  amount  as  shall  be  required  to  com- 
plete the  said  sum  shall  be  called  in  and  paid  up  within 
two  years  thereafter,  and  it  shall  not  be  necessary  that 
more  than  two  hundred  thousand  dollars  of  the  stock  of 
any  bank,  whether  incorporated  before  or  after  the  passing 
of  this  act,  be  paid  up  within  any  limited  period  from  the 
date  of  its  incorporation. 

8.  The  amount  of  notes  intended  for  circulation,  issued 
by  the  bank  and  outstanding  at  any  time,  shall  never 
exceed  the  amount  of  its  unimpaired  paid-up  capital.  No 
such  note  for  a  less  sum  than  four  dollars  shall  be  issued  or 
reissued  by  the  bank,  and  all  notes  for  a  less  sum  hereto- 
fore issued  shall  be  called  in  and  cancelled  as  soon  as  may 
be  practicable. 

9.  The  bank  shall  always  receive  in  payment  its  own 
notes  at  par  at  any  of  its  offices  and  whether  they  be  made 

177 


National    Monetary     Commission 

payable  there  or  not;  but  shall  not  be  bound  to  redeem 
them  in  specie  or  Dominion  notes  at  any  place  other  than 
where  they  are  made  payable.  The  place,  or  one  of  the 
places,  at  which  the  notes  of  the  bank  shall  be  made  pay- 
able shall  always  be  its  chief  seat  of  business. 

10.  No  dividend  or  bonus  shall  ever  be  made  so  as  to 
impair  the  paid-up  capital,  and  if  any  dividend  or  bonus 
be  so  made,  the  directors  knowingly  and  willfully  con- 
curring therein,  shall  be  jointly  and  severally  liable  for 
the  amount  thereof,  as  a  debt  due  by  them  to  the  bank; 
and  if  any  part  of  the  paid-up  capital  be  lost,  the  directors 
shall,  if  all  the  subscribed  stock  be  not  paid  up,  forthwith 
make  calls  upon  the  shareholders  to  an  amount  equivalent 
to  such  loss,  and  such  loss  (and  the  calls,  if  any)  shall  be 
mentioned  in  the  return  then  next  made  by  the  bank  to 
the  government;  provided  that  in  any  case  where  the 
capital  has  been  impaired,  as  aforesaid,  all  net  profits 
shall  be  applied  to  make  good  such  loss. 

11.  No  division  of  profits,  either  by  way  of  dividends 
or  bonus,  or  both  combined,  or  in  any  other  way,  exceed- 
ing the  rate  of  eight  per  cent  per  annum,  shall  be  paid  by 
the  bank,  unless,  after  paying  the  same,  it  shall  have  a 
rest  or  reserved  fund  equal  to  at  least  twenty  per  cent  of 
its  paid-up  capital,  deducting  all  bad  and  doubtful  debts 
before  calculating  the  amount  of  such  rest. 

12.  Certified  lists  of  the  shareholders  (or  of  the  princi- 
pal partners,  if  the  bank  be  en  commandite),  with  their 
additions  and  residences,  and  the  number  of  shares  they 
respectively  hold,  shall  be  laid  before  ParHament  every 
year,  within  fifteen  days  after  the  opening  of  the  session. 

13.  Monthly  returns  shall  be  made  by  the  bank  to  the 
government  in  the  following  form,  and  shall  be  made  up 
within  the  first  ten  days  of  each  month,  and  shall  exhibit 
the  condition  of  the  bank  on  the  last  juridical  day  of  the 
month  preceding;  and  such  monthly  returns  shall  be 
signed  by  the  president  or  vice-president,  or  the  director 

178 


History    of    Banking    in     Canada 

(or,  if  the  bank  be  en  commandite,  the  principal  partner) 
then  acting  as  president,  and  by  the  manager,  cashier,  or 
other  principal  officer  of  the  bank  at  its  chief  seat  of 
business : 

Return  of  the  amount  of  liabilities  and  assets  of  ike bank,  on  the 

day  of ,  A.  D.  i8.. 

[Capital,  authorized.?...     Capital  subscribed,?...     Capital,  paid  up,  $...] 

LIABILITIES. 

$      CtS. 

1 .  Notes  in  circulation 

2.  Government  deposits  payable  on  demand 

3 .  Other  deposits  payable  on  demand 

4.  Government  deposits  payable  after  notice,  or  on  a  fixed  day. 

5.  Other  deposits  payable  after  notice,  or  on  a  fixed  day 

6.  Due  to  other  banks  in  Canada 

7.  Due  to  other  banks  or  agents  not  in  Canada 

8.  Liabilities  not  included  under  the  foregoing  heads 

ASSETS. 

$      CtS. 

1 .  Specie 

2.  Provincial  or  Dominion  notes 

3.  Notes  of  and  cheques  on  other  banks 

4.  Balances  due  from  other  banks  in  Canada 

5.  Balances  due  from  other  banks  or  agents  not  in  Canada 

6.  Government  debentures  or  stock 

7.  Loans  to  the  governments  of  the  Dominion  and  of  any  of  the 

provinces,  respectively 

8.  Loans,  discounts,  or  advances  on  current  account  to  corpora- 

tions  

9.  Notes  and  bills  discounted  and  current 

10.  Notes  and  bills  discounted,   overdue,  and  not  specially  se- 

cured   

11.  Overdue  debts  secured  by  mortgage  or  other  deed  on  real 

estate,  or  by  deposit  of  or  lien  on  stock,  or  by  other  secu- 
rities   

12.  Real  estate  the  property  of  the  bank  (other  than  the  bank 

premises)  and  mortgages  on  real  estate  sold  by  the  bank__ 

13.  Bank  premises 

14.  Other  assets  not  included  under  the  foregoing  heads 

We  declare  that  the  foregoing  return  is  made  up  from  the  books  of 
the  bank,  and  that  it  is  correct  to  the  best  of  our  knowledge  and  belief. 

(Place)  this day  of ,  i8__. 

A.  B.,  President,  &c. 
C.  D.,  Cashier,  &c. 

179 


National    Monetary     Commission 

14.  The  bank  shall  always  hold,  as  nearly  as  may  be 
practicable,  one-half  of  its  cash  reserv^es  in  dominion 
notes  and  the  proportion  of  such  reserv^es  held  in  do- 
minion notes  shall  never  be  less  than  one-third  thereof. 

15.  Every  bank  to  which  this  act  applies  shall  be  ex- 
empt from  the  tax  now  imposed  on  the  average  amount 
of  its  notes  in  circulation,  to  which  other  banks  will  con- 
tinue liable,  and  from  the  obligation  to  hold  any  portion 
of  its  capital  in  government  debentures  or  debentures  of 
any  kind. 

16.  The  receiver-general  shall  make  such  arrangements 
as  may  be  necessary  for  ensuring  the  delivery  of  domin- 
ion notes  to  any  bank  in  exchange  for  an  equivalent 
amount  of  specie  at  the  several  offices  at  which  dominion 
notes  will  be  redeemable,  in  the  cities  of  Toronto,  Mon- 
treal, Halifax,  and  St.  John  (N.  B.),  respectively. 

INTERNAL    REGULATIONS. 
Shares  and  shareholders. 

17.  Books  of  subscription  may  be  opened,  and  shares 
of  the  capital  stock  of  the  bank  may  be  made  transfer- 
able, and  the  dividends  accruing  thereon  may  be  made 
payable,  in  the  United  Kingdom  of  Great  Britain  and 
Ireland,  in  like  manner  as  such  shares  and  dividends  are 
respectively  made  transferable  and  payable  at  the  head 
office  of  the  bank;  and  to  that  end  the  directors  may 
from  time  to  time  determine  the  proportion  of  the  shares 
which  shall  be  so  transferable  in  the  United  Kingdom  and 
make  such  rules  and  regulations  and  prescribe  such  forms 
and  appoint  such  agent  or  agents  as  they  may  deem 
necessary. 

18.  The  shares  of  the  capital  stock  shall  be  paid  in  by 
such  installments  and  at  such  times  and  places  as  the 
directors  shall  appoint,  and  executors,  administrators,  and 
curators  paying  the  installments  upon  the  shares  of  de- 

i8o 


History    of    Banking,     in     Canada 

ceased  shareholders  shall  be  and  are  respectively  indem- 
nified for  paying  the  same:  Provided  always,  That  no 
share  or  shares  shall  be  held  to  be  lawfully  subscribed  for 
unless  a  sum  equal  to  at  least  ten  per  centum  on  the 
amount  subscribed  for  be  actually  paid  at  the  time  or 
within  thirty  days  after  the  time  of  subscribing. 

19.  The  shares  of  the  capital  stock  of  the  bank  shall  be 
held  and  adjudged  to  be  personal  estate,  and  shall  be 
assignable  and  transferable  at  the  chief  place  of  business 
of  the  bank,  or  at  any  of  its  branches  which  the  directors 
shall  appoint  for  that  purpose,  and  according  to  such  form 
as  the  directors  shall  prescribe;  but  no  assignment  or 
transfer  shall  be  valid  unless  it  be  made  and  registered  and 
accepted  by  the  party  to  whom  the  transfer  is  made,  in  a 
book  or  books  to  be  kept  by  the  directors  for  that  purpose, 
nor  until  the  person  or  persons  making  the  same  shall,  if 
required  by  the  bank,  previously  discharge  all  debts  or 
liabilities  due  by  him,  her,  or  them  to  the  bank  which 
may  exceed  in  amount  the  remaining  stock,  if  any,  belong- 
ing to  such  person  or  persons,  and  no  fractional  part  or 
parts  of  a  share,  or  less  than  a  whole  share,  shall  be  assign- 
able or  transferable;  and  when  any  share  or  shares  of  the 
said  capital  stock  shall  have  been  sold  under  a  writ  of 
execution,  the  sheriff  by  whom  the  writ  shall  have  been 
executed  shall,  within  thirty  days  after  the  sale,  leave 
with  the  cashier,  manager,  or  other  officer  of  the  bank,  an 
attested  copy  of  the  writ,  with  the  certificate  of  such 
sheriff  endorsed  thereon,  certifying  to  whom  the  sale  has 
been  made,  and  thereupon  (but  not  until  after  all  debts 
or  liabilities  due  by  the  holder  or  holders  of  the  shares  to 
the  bank  shall  have  been  discharged  as  aforesaid),  the 
president  or  vice-president,  manager,  or  cashier  of  the 
bank,  shall  execute  the  transfer  of  the  share  or  shares  so 
sold  to  the  purchaser;  and  such  transfer  being  duly 
accepted,  shall  be  to  all  intents  and  purposes  as  valid  and 
effectual  in  law  as  if  it  had  been  executed  by  the  holder  or 


National     Monetary     Commission 

holders  of  the  said  share  or  shares,  any  law  or  usage  to 
the  contrary  notwithstanding. 

20.  A  list  of  all  transfers  of  shares  registered  each  day 
in  the  books  of  the  bank,  showing  the  parties  to  such 
transfers  and  the  number  of  shares  transferred  in  each 
case,  shall  be  made  up  at  the  end  of  each  day  and  kept  at 
the  chief  ofhce  of  the  bank  for  the  inspection  of  its  share- 
holders. 

21.  If  the  interest  in  any  share  or  shares  in  the  capital 
stock  becomes  transmitted  in  consequence  of  the  death  or 
bankruptcy  or  insolvency  of  any  shareholder,  or  in  conse- 
quence of  the  marriage  of  a  female  shareholder,  or  by  any 
other  lawful  means  than  by  a  transfer  according  to  the 
provisions,  of  this  act,  such  transmission  shall  be  authen- 
ticated by  a  declaration  in  writing,  as  hereinafter  men- 
tioned, or  in  such  other  manner  as  the  directors  of  the 
bank  shall  require,  and  every  such  declaration  shall  dis- 
tinctly state  the  manner  in  which,  and  the  party  to  whom, 
such  shares  shall  have  been  transmitted,  and  shall  be  by 
such  party  made  and  signed;  and  every  such  declaration 
shall  be  by  the  party  making  and  signing  the  same 
acknowledged  before  a  judge  of  a  court  of  record,  or  before 
the  mayor,  provost,  or  chief  magistrate  of  a  city,  town, 
borough,  or  other  place,  or  before  a  public  notary,  where 
the  same  shall  be  made  and  signed ;  and  every  declaration 
so  signed  and  acknowledged  shall  be  left  with  the  cashier, 
manager,  or  other  officer,  or  agent  of  the  bank,  who  shall 
thereupon  enter  the  name  of  the  party  entitled  under  such 
transmission  in  the  registry  of  shareholders ;  and  until  such 
transmission  shall  have  been  so  authenticated  no  party  or 
person  claiming  by  virtue  of  any  such  transmission  shall 
be  entitled  to  receive  any  share  of  the  profits  of  the  bank, 
or  to  vote  in  respect  of  any  such  share  or  shares :  Provided 
always,  That  every  such  declaration  and  instrument  as  by 
this  and  the  following  section  of  this  act  is  required  to 
perfect  the  transmission  of  a  share  or  shares  in  the  bank 


History    of    Banking    in     Canada 

which  shall  be  made  in  any  other  country  than  Canada, 
or  some  other  of  the  British  colonies  in  North  America,  or 
in  the  %iited  Kingdom  of  Great  Britain  and  Ireland,  shall 
be  f urtner  authenticated  by  the  British  consul  or  vice- 
consul,  or  other  the  accredited  representative  of  the 
British  Government  in  the  country  where  the  declaration 
shall  be  made,  or  shall  be  made  directly  before  such  British 
consul  or  vice-consul  or  other  accredited  representative: 
And  provided  also,  That  nothing  in  this  act  contained 
shall  be  held  to  debar  the  directors,  cashier,  or  other  officer 
or  agent  of  the  bank  from  requiring  corroborative  evi- 
dence of  any  fact  or  facts  alleged  in  any  such  declaration. 

22.  If  the  transmission  of  any  share  of  the  capital  stock 
be  by  virtue  of  the  marriage  of  a  female  shareholder,  the 
declaration  shall  be  accompanied  by  a  copy  of  the  register 
of  such  marriage,  or  other  particulars  of  the  celebration 
thereof,  and  shall  declare  the  identity  of  the  wife  with 
the  holder  of  such  share,  and  shall  be  made  and  signed 
by  such  female  shareholder  and  her  husband ;  and  it  shall 
be  competent  to  them  to  include  therein  a  declaration  to 
the  effect  that  the  share  transmitted  is  the  sole  property, 
and  under  the  sole  control  of  the  wife,  that  she  may  receive 
and  grant  receipts  fbr  the  dividends  and  profits  accruing 
in  respect  thereof,  and  dispose  of  and  transfer  the  share 
itself,  without  requiring  the  consent  or  authority  of  her 
husband;  and  such  declaration  shall  be  binding  upon  the 
bank  and  the  parties  making  the  same,  until  the  said 
parties  shall  see  fit  to  revoke  it  by  a  written  notice  to  that 
effect  to  the  bank ;  and  further,  the  omission  of  a  statement 
in  any  such  declaration,  that  the  wife  making  the  same  is 
duly  authorized  by  her  husband  to  make  the  same,  shall 
not  cause  the  declaration  to  be  deemed  either  illegal  or 
informal ;  any  law  or  usage  to  the  contrary  notwithstanding. 

23.  If  the  transmissions  have  taken  place  by  virtue  of 
any  testamentary  instrument,  or  by  intestacy,  the  probate 
of  the  will,  or  any  letters  of  administration,  or  act  of 

183 


National    Monetary     Commission 

curatorship,  or  an  official  extract  therefrom,  shall, 
together  with  such  declaration,  be  produced  and  left  with 
the  cashier,  or  other  officer  or  agent  of  the  bank,  who  shall, 
thereupon,  enter  the  name  of  the  party  entitled  under 
such  transmission,  in  the  register  of  shareholders. 

24.  If  the  transmission  of  any  share  or  shares  of  the 
capital  stock  of  the  bank  be  by  the  decease  of  any  share- 
holder, the  production  to  the  directors  and  the  deposit 
with  them  of  any  authenticated  copy  of  the  probate  of 
the  will  of  the  deceased  shareholder,  or  of  letters  of  admin- 
istration of  his  estate  granted  by  any  court  in  the  Dominion 
having  power  to  grant  such  probate  or  letters  of  adminis- 
tration, or  by  any  prerogative,  diocesan,  or  peculiar  court 
or  authority  in  England,  Wales,  Ireland,  or  any  British 
colony,  or  of  any  testament  testamentary  or  testament 
dative,  expede  in  Scotland,  or,  if  the  deceased  shareholder 
shall  have  died  out  of  Her  Majesty's  dominions,  the  pro- 
duction to  and  deposit  with  the  directors  of  any  authen- 
ticated copy  of  the  probate  of  his  or  her  will  or  letters  of 
administration  of  his  or  her  property,  or  other  documents 
of  like  import  granted  by  any  court  or  authority  having 
the  requisite  power  in  such  matters,  shall  be  sufficient 
justification  and  authority  to  the  directors  for  paying  any 
dividend,  or  transferring,  or  authorizing  the  transfer,  of 
any  share  or  shares,  in  pursuance  of  and  in  conformity  to 
such  probate,  letters  of  administration,  or  other  such 
document  as  aforesaid. 

25.  Whenever  the  interest  in  any  share  or  shares  of  the 
capital  stock  of  the  bank  shall  be  transmitted  by  the 
death  of  any  shareholder  or  otherwise,  or  whenever  the 
ownership  of  or  legal  right  of  possession  in  any  such  share 
or  shares  shall  change  by  any  lawful  means  other  than  by 
transfer,  according  to  the  provisions  of  this  act,  and  the 
directors  of  the  bank  shall  entertain  reasonable  doubts  as 
to  the  legality  of  any  claim  to'  and  upon  such  share  or 
shares  of  stock,  then,  and  in  such  case,  it  shall  be  lawful 

i8d 


History     of    Banking     in     Canada 

for  the  bank  to  make  and  file  in  one  of  the  superior  courts 
of  law  or  equity  in  the  province  in  which  the  head  office 
of  the  bank  is  situated,  a  declaration  and  petition  in  writ- 
ing, addressed  to  the  justices  of  the  court,  setting  forth 
the  facts  and  the  number  of  shares  previously  belonging 
to  the  party  in  whose  name  such  shares  stand  in  the  books 
of  the  bank,  and  praying  for  an  order  or  judgment  adju- 
dicating and  awarding  the  said  shares  to  the  party  or  par- 
ties legally  entitled  to  the  same,  and  by  which  order  or 
judgment  the  bank  shall  be  guided  and  held  fully  harm- 
less and  indemnified  and  released  from  all  and  every  other 
claim  for  the  said  shares  or  arising  therefrom:  Provided 
always,  That  notice  of  such  petition  shall  be  given  to  the 
party  claiming  such  share  or  shares,  or  to  the  attorney  of 
such  part}*  duly  authorized  for  the  purpose,  who  shall, 
upon  the  filing  of  such  petition,  establish  his  right  to  the 
several  shares  referred  to  in  such  petition;  and  the  delays 
to  plead  and  all  other  proceedings  in  such  cases  shall  be  the 
same  as  those  observed  in  analogous  cases  before  the  said 
superior  courts:  Provided  also,  That  the  costs  and  ex- 
penses of  procuring  such  order  and  adjudication  shall  be 
paid  by  the  party  or  parties  to  whom  the  said  shares  shall 
be  declared  lawfully  to  belong,  and  such  shares  shall  not  be 
transferred  until  such  costs  and  expenses  be  paid,  saving 
the  recourse  of  such  party  against  any  party  contesting  his 
right. 

26.  The  bank  shall  not  be  bound  to  see  to  the  execution 
of  any  trust,  whether  expressed,  implied,  or  constructive, 
to  which  any  of  the  shares  of  its  stock  shall  be  subject, 
and  the  receipt  of  the  party  in  whose  name  any  such  share 
shall  stand  in  the  books  of  the  bank,  or,  if  it  stands  in  the 
name  of  more  parties  than  one,  the  receipt  of  one  of  the 
parties,  shall  be  a  sufficient  discharge  to  the  bank  for  any 
dividend  or  any  other  sum  of  money  payable  in  respect 
of  such  share,  unless  express  notice  to  the  contrary  has 
been  given  to  the  bank;  and  the  bank  shall  not  be  bound 


National     Monetary     Commission 

to  see  to  the  application  of  the  money  paid  upon  such  re- 
ceipt, whether  given  by  one  of  such  parties  or  all  of  them. 

27.  Each  shareholder  in  the  bank  shall,  on  all  occasions 
on  which  the  votes  of  the  shareholders  are  to  be  taken, 
have  one  vote  for  each  share  held  by  him  for  at  least  thirty 
days  before  the  time  of  meeting.  Shareholders  may  vote 
by  proxy,  but  no  person  but  a  shareholder  shall  be  per- 
mitted to  vote  or  act  as  such  proxy;  and  no  manager, 
cashier,  bank  clerk,  or  other  subordinate  officer  of  the 
bank  shall  vote  either  in  person  or  by  proxy,  or  hold  a 
proxy  for  that  purpose.  All  questions  proposed  for  the 
consideration  of  the  said  shareholders  shall  be  determined 
by  the  majority  of  their  votes;  the  chairman  elected  to 
preside  at  any  such  meeting  of  the  said  shareholders  shall 
vote  as  a  shareholder  only,  unless  there  be  a  tie,  in  which 
case  (except  as  to  the  election  of  a  director)  he  shall  have 
a  casting  vote;  and  where  two  or  more  persons  are  joint 
holders  of  shares,  it  shall  be  lawful  that  one  only  of  such 
joint  holders  be  empowered  by  letter  of  attorney  from 
the  other  joint  holder  or  holders,  or  a  majority  of  them, 
to  represent  the  said  shares,  and  vote  accordingly;  and 
in  all  cases  when  the  votes  of  the  shareholders  are  taken 
the  voting  shall  be  by  ballot. 

28.  The  shareholders  in  the  bank  shall  have  power  to 
regulate  by  by-law  the  following  matters  incident  to  the 
management  and  administration  of  the  affairs  of  the 
bank,  viz :  The  qualification,  and  number  of  the  directors, 
which  shall  not  be  less  than  five  nor  more  than  ten,  and 
the  quorum  thereof;  the  method  of  filling  up  vacancies  in 
the  board  of  directors  whenever  the  same  may  occur 
during  each  year;  and  the  time  and  proceedings  for  the 
election  of  directors,  in  case  of  a  failure  of  any  election  on 
the  day  appointed  for  it — the  remuneration  of  the  presi- 
dent, vice-president  and  other  directors;  and  the  closing 
of  the  transfer  book  during  a  certain  time  not  exceeding 
fifteen  days,  before  the  payment  of  each  semiannual  divi- 

186 


History    of    Banking    in     Can  ad 


a 


dend:  Provided,  That  no  director  shall  hold  less  than 
three  thousand  dollars  of  the  stock  of  the  bank,  when  the 
paid-up  capital  thereof  is  one  million  dollars  or  less,  nor 
less  than  four  thousand  dollars  of  stock  when  the  paid-up 
capital  thereof  is  over  one  million  and  does  not  exceed 
three  millions,,  nor  less  than  five  thousand  dollars  of  stock 
when  the  paid-up  capital  thereof  exceeds  three  millions; 
the  directors  shall  be  elected  annually  by  the  shareholders 
and  shall  be  eligible  for  re-election:  Provided,  That  the 
foregoing  provisions,  touching  directors,  shall  not  apply  to 
a  bank  en  commandite,  which  shall  in  these  matters  be 
governed  by  the  provisions  of  its  charter.  The  share- 
holders (or  if  the  bank  be  en  commandite,  the  principal 
partners),  may  also  regulate  by  by-law  the  amount  of 
discounts  or  loans  which  may  be  made  to  directors  (or  if 
the  bank  be  en  commandite  to  the  principal  partners), 
either  jointly  or  severally  or  to  any  one  firm  or  person, 
or  to  any  shareholder  or  to  corporations:  Provided,  That 
until  it  is  otherwise  ordered  by  by-law  under  this  section, 
the  by-laws  of  the  bank  on  any  matter  which  can  be  regu- 
lated by  by-law  under  this  section  shall  remain  in  force, 
except  as  to  the  qualification  of  directors  as  to  which  they 
shall  remain  in  force  until  the  next  annual  general  meeting 
of  the  shareholders,  after  the  first  day  of  July,  1871,  after 
which  no  person  shall  be  a  director  unless  he  possesses  the 
number  of  shares  hereby  required  or  such  greater  number 
as  may  be  required  by  any  by-law  in  that  behalf. 

29.  Any  number  not  less  than  twenty-five  of  the  share- 
holders of  the  bank  who  together  may  be  proprietors  of  at 
least  one-tenth  of  the  paid  up  capital  stock  of  the  bank 
by  themselves  or  by  their  proxies,  or  the  directors  of  the 
bank  or  any  four  of  them,  shall  have  power  at  any  time 
to  call  a  special  general  meeting  of  the  shareholders  of  the 
bank  to  be  held  at  their  usual  place  of  meeting  upon  giving 
six  weeks  previous  public  notice,  specifying  in  such  notice 
the  object  or  objects  of  such  meeting;  and  if  the  object  of 

187 


National     M  on  et  ar  y     Commission 

any  such  special  general  meeting  be  to  consider  of  the  pro- 
posed removal  of  the  president,  or  vice-president,  or  of  a 
director  or  directors  of  the  said  bank  for  maladministra- 
tion or  other  specified  and  apparently  just  cause,  then  if 
a  majority  of  the  votes  of  the  shareholders  of  such  meeting 
be  given  for  such  removal,  a  director  or  directors  to  replace 
him  or  them  shall  be  elected  or  appointed  in  the  manner 
provided  in  the  by-laws  of  the  bank,  or  if  there  be  no  by- 
laws providing  therefor  then  by  the  shareholders  at  such 
meeting;  and  if  it  be  the  president  or  vice-president  who 
shall  be  removed,  his  office  shall  be  filled  up  by  the  direc- 
tors (in  the  manner  provided  in  case  of  a  vacancy  occur- 
ring in  the  office  of  president  or  vice-president)  who  shall 
choose  or  elect  a  director  to  serve  as  such  president. 

President  and  directors. 

30.  The  stock,  property,  affairs,  and  concerns  of  the 
bank  shall  be  managed  by  a  board  of  directors,  the  number 
to  be  fixed  as  herein  provided,  who  shall  choose  from 
among  themselves  a  president  and  vice-president;  the  di- 
rectors shall  be  natural  born  or  naturalized  subjects  of 
Her  Majesty,  and  shall  be  elected  on  such  day  in  each 
vear  as  may  be  or  may  have  been  appointed  by  the  charter 
or  by  any  by-law  of  the  bank,  and  at  such  time  of  the  day 
and  at  such  place  where  the  head  office  of  the  bank  is  situ- 
ate, as  a  majority  of  directors  for  the  time  being  shall  ap- 
point; and  public  notice  shall  be  given  by  the  directors, 
by  publishing  the  same  at  least  four  weeks  in  a  newspaper 
of  the  place  where  the  said  head  office  is  situate,  previous 
to  the  time  of  holding  such  election ;  and  the  election  shall 
be  held  and  made  by  such  of  the  shareholders  of  the  bank 
as  have  paid  all  calls  made  by  the  directors  and  as  shall 
attend  for  the  purpose  in  their  own  proper  persons  or  by 
proxy,  and  all  elections  for  directors  shall  be  by  ballot, 
and  the  said  proxies  shall  only  be  capable  of  being  held 
and  voted  upon  by  shareholders  then  present,  and  the  per- 


History    of    Banking    in     Canada 

sons,  to  the  number  fixed  by  by-law,  as  hereinbefore  pro- 
vided, who  have  the  greatest  number  of  votes  at  any 
election,  shall  be  directors :  Provided,  That  if  it  should  hap- 
pen at  any  election  that  two  or  more  persons  have  an  equal 
number  of  votes,  and  the  election  or  nonelection  of  one  or 
more  of  such  persons  as  a  director  or  directors  depends  on 
such  equality,  then  the  directors  who  shall  have  had  a 
greater  number,  or  the  majority  of  them,  shall  determine 
which  of  the  said  persons  so  having  an  equal  number  of 
votes  shall  be  the  director  or  directors,  so  as  to  complete 
the  full  number ;  and  in  case  of  a  vacancy  occurring  in  the 
number  of  directors,  such  vacancy  shall  be  filled  in  the 
manner  provided  by  the  by-laws,  but  the  non-filling  of 
the  vacancy  shall  not  vitiate  the  acts  of  a  quorum  of  the 
remaining  directors;  and  if  the  vacancy  so  created  shall 
be  that  of  a  president  or  vice-president,  the  directors  at 
the  first  meeting,  after  completion  of  their  number,  shall, 
from  among  themselves,  elect  a  president  or  vice-president, 
who  shall  continue  in  office  for  the  remainder  of  the  year. 
And  the  said  directors,  as  soon  as  may  be  after  the  said 
election,  shall  proceed  in  like  manner  to  elect  by  ballot 
two  of  their  number  to  be  president  and  vice  president: 
Provided  always,  That  no  person  shall  be  eligible  to  be  or 
continue  a  director  unless  he  shall  hold,  in  his  name  and 
for"  his  own  use,  stock  in  the  said  bank  to  the  amount 
hereinbefore  provided. 

31 .  In  case  it  should  happen  that  an  election  of  directors 
should  not  be  made  on  any  day  when  it  ought  to  have  been 
made,  the  corporation  shall  not  for  that  cause  be  deemed 
to  be  dissolved,  but  it  shall  be  lawful  on  any  other  day  to 
hold  and  make  an  election  of  directors  in  such  manner  as 
shall  have  been  provided  by  the  by-laws  made  by  the 
shareholders  in  that  behalf ;  and  the  directors  then  in  office 
shall  remain  so  until  a  new  election  shall  be  made. 

32.  At  all  meetings  of  the  directors  of  the  bank  not  less 
than  three  of  them  shall  constitute  a  board  or  quorum  for 

S.  Doc.  332.  61-2— —13  189  » 


National    Monetary     Commission 

the  transaction  of  business;  and  at  the  said  meetings  the 
president,  or  in  his  absence  the  vice-president,  or  in  their 
absence  one  of  the  directors  present,  to  be  chosen  pro  tem- 
pore, shall  preside;  and  the  president,  vice-president,  or 
president  pro  tempore  so  presiding  shall  vote  as  a  director, 
and  if  there  be  an  equal  division  on  any  question  shall  have 
a  casting  vote. 

33.  The  directors  for  the  time  being,  or  a  majority  of 
them,  shall  have  power  to  make  such  by-laws  and  regula- 
tions (not  repugnant  to  the  provisions  of  this  act  or  the 
laws  of  the  Dominion  of  Canada)  as  to  them  shall  appear 
needful  and  proper  touching  the  management  and  dispo- 
sition of  the  stock,  property,  estate,  and  effects  of  the 
bank,  and  touching  the  duties  and  conduct  of  the  officers, 
clerks,  and  servants  employed  therein,  and  all  such  other 
matters  as  appertain  to  the  business  of  a  bank,  and  shall 
also  have  power  to  appoint  as  many  officers,  clerks,  and 
servants  for  carrying  on  the  said  business,  and  with  such 
salaries  and  allowances  as  to  them  may  seem  meet;  and 
they  may  also  appoint  a  director  or  directors  for  any 
branch  of  the  bank :  Provided  always,  That  before  permit- 
ting any  cashier,  officer,  clerk,  or  servant  of  the  bank  to 
enter  upon  the  duties  of  his  office,  the  directors  shall  re- 
quire him  to  give  bond  or  other  security  to  the  satisfaction 
of  the  directors  for  the  due  and  faithful  performance  of 
his  duties:  Provided  also,  That  all  by-laws  of  the  bank 
lawfully  made  before  the  passing  of  this  act  as  to  any 
matter  respecting  which  the  directors  can  make  by-laws 
under  this  section  (including  any  by-laws  for  establishing 
a  guarantee  fund  for  the  employees  of  the  bank)  shall  re- 
main in  force  until  they  are  repealed  or  altered  by  others 
made  under  this  act. 

34.  The  directors  shall  have  power  to  make  such  calls 
of  money  from  the  several  shareholders  for  the  time  being 
upon  the  shares  subscribed  for  in  the  bank  by  them 
respectively  as  they  may  find  necessary,  and  in  the  cor- 

190 


History    of    Banking    in     Canada 

porate  name  of  the  bank  to  sue  for,  recover,  and  get  in 
all  such  calls,  or  to  cause  and  declare  such  shares  to  be 
forfeited  to  the  bank  in  case  of  non-payment  of  any  such 
caU;  and  an  action  may  be  brought  to  recover  any 
money  due  on  any  such  call,  and  it  shall  not  be  necessary 
to  set  forth  the  special  matter  in  the  declaration,  but  it 
shall  be  sufficient  to  allege  that  the  defendant  is  holder 
of  one  share  or  more,  as  the  case  may  be,  in  the  capital 
stock  of  the  bank,  and  is  indebted  to  the  bank  for  a  call 
or  calls  upon  such  share  or  shares  in  the  sum  to  which 
the  call  or  calls  amount,  as  the  case  may  be,  stating  the 
amount  and  number  of  such  calls  whereby  an  action 
hath  accrued  to  the  bank  to  recover  the  same  from  such 
defendant  by  virtue  of  this  act;  and  it  shall  be  sufficient 
to  maintain  such  action,  to  prove  by  any  one  witness  (a 
shareholder  being  competent),  that  the  defendant,  at 
the  time  of  making  any  such  call,  was  a  shareholder  in 
the  number  of  shares  alleged,  and  to  produce  the  by-law 
or  resolution  of  the  directors  making  and  prescribing  such 
call,  and  to  prove  notice  thereof,  given  in  conformity 
with  such  by-law  or  resolution;  and  it  shall  not  be  nec- 
essary to  prove  the  appointment  of  the  directors  or  any 
other  matter  whatsoever,  provided  that  such  calls  shall 
be  made  at  intervals  of  not  less  than  thirty  days,  and 
upon  notice  to  be  given  at  least  thirty  days  prior  to  the 
day  on  which  such  call  shall  be  payable;  and  no  such 
call  shall  exceed  ten  per  cent  of  each  share  subscribed. 

35.  Provided  also,  that  if  any  shareholder  or  share- 
holders refuse  or  neglect  to  pay  any  or  either  of  the  in- 
stalments upon  his,  her,  or  their  shares  of  the  said  capital 
stock  at  the  time  or  times  appointed  by  such  call,  as 
aforesaid,  such  shareholder  or  shareholders  shall  incur  a 
forfeiture  to  the  use  of  the  bank  of  a  sum  of  money  equal 
to  ten  per  centum  on  the  amount  of  such  shares;  and, 
moreover,  it  shall  be  lawful  for  the  directors  of  the  bank 
(without  any  previous  formality  other  than  thirty  days' 

191 


National    Monetary     Commission 

public  notice  of  their  intention),  to  sell  at  public  auction 
the  said  shares,  or  so  many  of  the  said  shares  as  shall, 
after  deducting-  the  reasonable  expenses  of  the  sale, 
yield  a  sum  of  money  sufficient  to  pay  the  unpaid  instal- 
ments due  on  the  remainder  of  the  said  shares  and  the 
amount  of  forfeitures  incurred  upon  the  whole;  and 
the  president  or  vice-president,  manager  or  cashier,  of 
the  bank  shall  execute  the  transfer  to  the  purchaser  of 
the  shares  of  stock  so  sold;  and  such  transfer  being 
accepted,  shall  be  as  vaHd  and  effectual  in  law  as  if  the 
same  had  been  executed  by  the  original  holder  or  holders 
of  the  shares  of  stock  thereby  transferred:  Provided 
always,  That  nothing  in  this  section  contained  shall  be 
held  to  debar  the  directors,  or  the  shareholders  at  a 
general  meeting,  from  remitting  either  in  whole  or  in 
part,  and  conditionally  or  unconditionally,  any  forfeiture 
incurred  by  the  nonpayment  of  instalments  as  aforesaid, 
or  to  prevent  the  bank  from  enforcing  the  payment  of 
any  call  or  calls  by  suit  in  lieu  of  forfeiting  the  same. 

36.  At  every  annual  meeting  of  the  shareholders  for 
the  election  of  directors,  the  outgoing  directors  shall 
submit  a  clear  and  full  statement  of  the  affairs  of  the 
bank,  containing  on  the  one  part  the  amount  of  the  capital 
stock  paid  in,  the  amount  of  notes  of  the  bank  in  circu- 
lation and  net  profits  made,  the  balances  due  to  other 
banks  and  institutions,  and  the  cash  deposited  in  the 
bank,  distinguishing  deposits  bearing  interest  from  those 
not  bearing  interest — and  on  the  other  part,  the  amount 
of  the  current  coin,  the  gold  and  silver  bullion,  and  the 
amount  of  Dominion  notes  in  the  vaults  of  the  bank, 
the  balances  due  to  the  bank  from  other  banks  and  insti- 
tutions, the  value  of  the  real  and  other  property  of  the 
bank,  and  the  amount  of  debts  owing  to  the  bank,  includ- 
ing and  particularizing  the  amounts  so  owing  upon  bills 
of  exchange,  discounted  notes,  mortgages,  and  other 
securities — thus  exhibiting  on  the  one  hand  the  liabilities 

192 


History     of    Banking     in     Canada 

of,  or  the  debts  due  by  the  bank,  and  on  the  other  hand^ 
the  assets  and  resources  thereof;  and  the  said  statement 
shall  also  exhibit  the  rate  and  amount  of  the  last  divi- 
dend declared  by  the  directors,  the  amount  of  reserved 
profits  at  the  time  of  declaring  the  said  dividend,  and  the 
amount  of  debts  due  to  the  bank,  over  due  and  not  paid, 
with  an  estimate  of  the  loss  which  will  probably  accrue 
thereon. 

37.  The  books,  correspondence  and  funds  of  the  bank 
shall  at  all  times  be  subject  to  the  inspection  of  the 
directors;  but  no  shareholder  not  being  a  director  shall 
be  allowed  to  inspect  the  account  of  any  person  dealing 
with  the  bank. 

38.  It  shall  be  the  duty  of  the  directors  of  the  bank 
to  make  half-yearly  dividends  of  so  much  of  the  profits 
of  the  bank  as  to  the  majority  of  them  may  seem  advis- 
able and  not  inconsistent  with  the  provisions  of  sections 
ten  and  eleven  of  this  act;  and  to  give  public  notice  of 
the  payment  of  such  dividends  at  least  thirty  days 
previously. 

POWERS   AND   OBUGATIONS   OF   THE   BANK. 

Loans,  interest,  advances  on  warehouse  receipts,  &c. 

39.  The  bank  shall  have  the  power  to  acquire  and  hold 
real  and  immovable  estate  for  its  actual  use  and  occupa- 
tion and  the  management  of  its  business,  and  to  sell  or  dis- 
pose of  the  same,  and  to  acquire  other  property  in  its 
stead,  for  the  same  purposes. 

40.  The  bank  shall  not,  either  directly  or  indirectly,  lend 
money  or  make  advances  upon  the  security,  mortgage,  or 
hypothecation  of  any  lands  or  tenements,  or  of  any  ships 
or  other  vessels,  nor  upon  the  security  or  pledge  of  any 
share  or  shares  of  the  capital  stock  of  the  bank,  or  of  any 
goods,  wares,  or  merchandize,  except  as  authorized  in  this 
act;  nor  shall  the  bank,  either  directly  or  indirectly,  deal 

193 


National    Monetary     Commission 

in  the  buying  and  selling  or  bartering  of  goods,  wares,  or 
merchandize,  or  engage  or  be  engaged  in  any  trade  what- 
ever, except  as  a  dealer  in  gold  and  silver  bullion,  bills  of 
exchange,  discounting  of  promissory  notes  and  negotiable 
securities,  and  in  such  trade  generally  as  appertains  to 
the  business  of  banking. 

41.  The  bank  may  take,  hold,  and  dispose  of  mortgages 
and  hypotheques  upon  personal  as  well  as  real  property, 
by  way  of  additional  security  for  debts  contracted  to  the 
bank  in  the  course  of  its  business;  and  the  rights,  powers, 
and  privileges  which  the  bank  is  hereby  declared  to  have 
or  to  have  had  in  respect  of  real  estate  mortgaged  to  it 
shall  be  held  and  possessed  by  it,  in  respect  of  any  personal 
estate  which  may  be  mortgaged  or  hypothecated  to  it. 

42.  The  bank  may  purchase  any  lands  or  real  estate 
offered  for  sale  under  execution  at  the  suit  of  the  bank,  or 
exposed  to  sale  by  the  bank  under  a  power  of  sale  given  to 
it  for  that  purpose,  in  cases  where,  under  similar  circum- 
stances, an  individual  could  so  purchase,  without  any 
restriction  as  to  the  value  of  the  lands  which  it  may  so 
purchase,  and  may  acquire  a  title  thereto  as  any  individual 
purchasing  at  sheriff's  sale  or  under  a  power  of  sale,  in  like 
circumstances,  could  do,  and  may  take,  have,  hold,  and 
dispose  of  the  same  at  pleasure. 

43.  The  bank  may  acquire  and  hold  an  absolute  title  in 
or  to  land  mortgaged  to  it  as  security  for  a  debt  due  or 
owing  to  it,  either  by  obtaining  a  release  of  the  equity  of 
redemption  in  the  mortgaged  property,  or  by  procuring  a 
foreclosure  in  any  court  of  chancery  or  of  equity,  or  by 
other  means  whereby,  as  between  individuals,  an  equity 
of  redemption  can  by  law  be  barred,  and  may  purchase 
and  acquire  any  prior  mortgage  or  charge  on  such  land. 

44.  Nothing  in  any  charter,  act,  or  law  shall  be  con- 
strued as  ever  having  prevented  or  as  preventing  the  bank 
from  acquiring  and  holding  an  absolute  title  to  and  in  any 
such  mortgaged  lands,  whatever  the  value  thereof  may  be 

194 


History    of    Banking    in     Canada 

or  from  exercising  or  acting  upon  any  power  of  sale  con- 
tained in  any  mortgage  given  to  it  or  held  by  it,  authorizing 
or  enabling  it  to  sell  or  convey  away  any  lands  so  mortgaged. 

45.  The  words  "goods,  wares,  and  merchandize"  when 
used  in  the  six  next  following  sections  of  this  act,  shall  be 
held  to  comprise  in  addition  to  the  things  usually  under- 
stood thereby,  timber,  boards,  deals,  staves,  and  other 
lumber,  and  also  all  agricultural  produce. 

46.  The  bank  may  acquire  and  hold  any  cove  receipt  or 
any  receipt  by  a  cove  keeper,  or  by  the  keeper  of  any 
wharf,  yard,  harbor,  or  other  place,  any  bill  of  lading,  any 
specification  of  timber,  or  any  receipt  given  for  cereal 
grains,  goods,  wares,  or  merchandize  stored  or  deposited 
in  any  cove,  wharf,  yard,  harbor,  warehouse,  mill,  or  other 
place  in  Canada,  or  shipped  in  any  vessel  or  delivered  to 
any  carrier  for  carriage  from  any  place  whatever  to  any 
part  of  this  Dominion,  or  through  the  same  or  on  the 
waters  bordering  thereon,  or  from  the  same  to  any  other 
place  whatsoever,  and  whether  such  cereal  grains  are  to  be 
delivered  upon  such  receipt  in  species  or  converted  into 
flour,  as  collateral  security  for  the  due  payment  of  any  bill 
of  exchange  or  note  discounted  by  such  bank  in  the  regular 
course  of  its  banking  business,  or  for  any  debt  which  may 
become  due  to  the  bank  under  any  credit  opened  or 
liability  incurred  by  the  bank  for  or  on  behalf  of  the  holder 
or  owner  of  such  bill  of  lading,  specification,  or  receipt,  or 
for  any  other  debt  to  become  due  to  the  bank;  and  such 
bill  of  lading,  specification,  or  receipt,  being  so  acquired, 
shall  vest  in  the  bank  from  the  date  of  the  acquisition 
thereof  all  the  right  and  title  of  the  last  previous  holder 
thereof,  and  if  such  holder  be  the  agent  of  the  owner, 
within  the  meaning  of  the  fifty-ninth  chapter  of  the  con- 
solidated statutes  of  the  late  Province  of  Canada,  then  all 
the  right  and  title  of  the  owner  thereof  to  or  in  such 
cereal  grains,  goods,  wares,  or  merchandize,  subject  to  his 
right  to  have  the  same  re-transferred  to  him,  if  such  bill, 

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National    Monetary     Commission 

note,  or  debt  be  paid  when  due;  and  in  the  event  of  the 
non-payment  of  such  bill  or  note  or  debt  when  due,  such 
bank  may  sell  the  said  cereal  grains,  goods,  wares,  or 
merchandize  and  retain  the  net  proceeds,  or  so  much 
thereof  as  will  be  equal  to  the  amount  due  to  the  bank 
upon  such  bill  or  debt  or  note,  with  interest  and  costs, 
returning  the  overplus,  if  any,  to  the  person  from  whom 
such  instrument  was  acquired  by  the  bank. 

47.  No  transfer  of  any  such  bill  of  lading,  specification 
of  timber,  or  receipt  shall  be  made  under  this  act  to  secure 
the  payment  of  any  bill,  note,  or  debt,  unless  such  bill, 
note,  or  debt  be  negotiated  or  contracted  at  the  time  of  the 
acquisition  thereof  by  the  bank,  or  upon  the  understand- 
ing that  such  bill  of  lading,  specification  of  timber,  or 
receipt  would  be  transferred  to  the  bank,  but  such  bill, 
note,  or  debt  may  be  renewed,  or  the  time  for  the  payment 
thereof  extended,  without  affecting  such  security. 

48.  Where  any  person  engaged  in  the  calling  of  cove 
keeper,  keeper  of  a  wharf,  yard,  harbor,  or  other  place, 
warehouseman,  miller,  wharfinger,  master  of  a  vessel  or 
carrier,  curer  and  packer  of  pork,  or  dealer  in  wool,  by 
whom  a  receipt  or  bill  of  lading  may  be  given  in  such  ca- 
pacity, as  hereinbefore  mentioned,  for  cereal  grains,  goods, 
wares,  or  merchandize,  is  the  same  time  the  owner  of  or 
entitled  himself  (otherwise  than  in  his  capacity  of  ware- 
houseman, miller,  wharfinger,  master  of  a  vessel  or  carrier, 
cove  keeper,  keeper  of  a  wharf,  yard,  harbor,  or  other  place, 
curer  and  packer  of  pork,  or  dealer  in  wool)  to  receive  such 
cereal  grains,  goods,  wares,  or  merchandize,  any  such  re- 
ceipt or  bill  of  lading  or  any  acknowledgment  or  certificate 
intended  to  answer  the  purpose  of  such  receipt  or  bill  of 
lading,  made  by  such  person,  shall  be  as  valid  and  effectual 
for  the  purposes  of  this  act  as  if  the  person  making  such 
receipt,  acknowledgment,  or  certificate  or  bill  of  lading,  and 
the  owner  or  person  entitled  to  receive  such  cereal  grains, 
goods,  wares,  or  merchandize  were  not  one  and  the  same 

196 


History    of    Banking    in     Canada 

person,  and  in  the  case  of  the  curing  and  packing  of  pork 
a  receipt  for  hogs  shall  apply  to  the  pork  made  from  such 
hogs. 

49.  All  advances  made  on  the  security  of  any  bill  of 
lading,  specification,  receipt,  acknowledgment,  or  certifi- 
cate shall  give  and  be  held  to  give  to  the  bank  making 
such  advances  a  claim  for  the  repayment  of  such  advances 
on  the  grain,  goods,  wares,  or  merchandise  therein  men- 
tioned, prior  to  and  by  preference  over  the  claim  of  any 
unpaid  vendor,  any  law,  usage,  or  custom  to  the  contrary 
notwithstanding. 

50.  But  no  timber,  boards,  deals,  staves,  or  other  lum- 
ber shall  be  held  in  pledge  by  the  bank  for  any  period  ex- 
ceeding twelve  calendar  months,  except  by  the  consent  in 
writing  of  the  person  pledging  the  same,  and  no  sale  of  any 
timber,  boards,  deals,  staves,  or  other  lumber  shall  be 
made  under-  this  act  until  nor  unless  notice  of  the  time 
and  place  of  such  sale  shall  have  been  given  by  letter 
mailed  in  the  post  office  to  the  last  known  address  of  the 
pledger  thereof  at  least  thirty  days  prior  to  the  sale 
thereof,  and  every  such  sale  shall  be  made  by  public  auc- 
tion after  notice  thereof  by  advertisement,  stating  the 
time  and  place  thereof,  in  at  least  two  newspapers  published 
in  or  nearest  to  the  place  where  such  sale  is  to  be  made, 
and  in  every  issue  of  such  newspapers  during  eight  days, 
which  newspapers  shall  be  those  whose  issue  is  most  fre- 
quent at  or  nearest  the  place  where  the  sale  is  to  be  made, 
and  if  such  place  be  in  the  Province  of  Quebec,  then  at 
least  one  of  such  newspapers  shall  be  a  newspaper  pub- 
lished in  the  English  language,  and  at  least  one  other  of 
such  newspapers  shall  be  a  newspaper  published  in  the 
French  language;  and  no  cereal  grains  or  goods,  wares  or 
merchandise,  other  than  timber,  boards,  deals,  staves,  and 
other  lumber,  shall  be  held  in  pledge  by  the  bank  for  a  period 
exceeding  six  months  (except  by  consent  of  the  person 
pledging  the  same),  and  no  sale  thereof  shall  be  made  by 

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National    M on  et ar y     Commission 

the  bank  under  this  act  until  or  unless  notice  has  been  given 
by  letter  mailed  in  the  post  office  to  the  last  known  ad- 
dress of  the  pledger  thereof  at  least  ten  days  prior  to  such 
sale. 

5 1 .  The  bank  shall  not  make  loans  or  grant  discounts  on 
the  security  of  its  own  stock,  but  shall  have  a  privileged 
lien  for  any  overdue  debt  on  the  shares  and  unpaid  divi- 
dends of  the  debtor  thereof,  and  may  decline  to  allow  any 
transfer  of  the  shares  of  such  debtor  until  such  debt  is 
paid,  and  if  such  debt  is  not  paid  when  due  the  bank  may 
sell  such  shares,  after  notice  has  been  given  to  the  holder 
thereof  of  the  intention  of  the  bank  to  sell  the  same,  by 
mailing  such  notice  in  the  post  office  to  the  last  known 
address  of  such  holder  at  least  thirty  days  prior  to  such 
sale;  and  upon  such  sale  being  made,  the  president,  vice- 
president,  manager,  or  cashier  shall  execute  a  transfer  of 
such  shares  to  the  purchaser  thereof  in  the  usual  transfer 
book  of  the  bank,  which  transfer  shall  vest  in  such  pur- 
chaser all  the  rights  in  or  to  such  shares  which  were  pos- 
sessed by  the  holder  thereof,  with  the  same  obligation  of 
warranty  on  his  part  as  if  he  were  the  vendor  thereof, 
but  without  any  warranty  from  the  bank  or  by  the  officer 
of  the  bank  executing  such  transfer. 

And  nothing  in  this  act  contained  shall  prevent  the  bank 
from  acquiring  and  holding  as  collateral  security  for  any 
advance  by  or  debt  to  the  bank,  or  for  any  credit  or  lia- 
bility incurred  by  the  bank  to  or  on  behalf  of  any  person 
(and  either  at  the  time  of  such  advance  by  or  the  contract- 
ing of  such  debt  to  the  bank,  or  the  opening  of  such  credit, 
or  the  incurring  of  such  liability  by  the  bank) ,  the  shares 
of  the  capital  stock  of  any  other  bank,  the  bonds  or  deben- 
tures of  municipal  or  other  corporations,  or  dominion, 
provincial,  British,  or  foreign  public  securities;  and  such 
stock,  bonds,  debentures,  or  securities  may,  in  case  of 
default  to  pay  the  debt  for  securing  which  they  were  so 


History    of    Banking    in     Canada 

acquired  and  held,  be  dealt  with,  sold,  and  conveyed  in  like 
manner  and  subject  to  the  same  restrictions  as  are  herein 
provided  in  respect  of  stock  of  the  bank  on  which  it  has 
acquired  a  lien  under  this  act. 

52.  The  bank  shall  not  be  liable  to  incur  any  penalty  or 
forfeiture  for  usury;  and  may  stipulate  for,  take,  reserve,  or 
exact  any  rate  of  interest  or  discount  not  exceeding  seven 
per  centum  per  annum,  and  may  receive  and  take  in  ad- 
vance any  such  rate,  but  no  higher  rate  of  interest  shall  be 
recoverable  by  the  bank.  Any  rate  of  interest  whatever 
may  be  allowed  by  the  bank  upon  money  deposited  with  it. 

53.  The  bank  may,  in  discounting  at  any  of  its  places  of 
business,  branches,  agencies,  or  offices  of  discount  and  de- 
posit, any  note,  bill,  or  other  negotiable  security  or  paper 
payable  at  any  other  of  its  own  places  or  seats  of  business, 
branches,  agencies,  or  offices  of  discount  and  deposit  in 
Canada,  receive  or  retain  in  addition  to  the  discount  any 
amount  not  exceeding  the  following  rates  per  centum, 
according  to  the  time  it  has  to  run,  on  the  amount  of  such 
note,  bill,  or  other  negotiable  security  or  paper,  to  defray 
the  expenses  attending  the  collection  thereof;  that  is  to 
say,  under  thirty  days,  one-eighth  of  one  per  cent;  thirty 
days  or  over,  but  under  sixty  days,  one-fourth  of  one  per 
cent;  sixty  days  and  over,  but  under  ninety  days,  three- 
eighths  of  one  per  cent;  ninety  days  and  over,  one-half  of 
one  per  cent. 

54.  The  bank  may,  in  discounting  any  note,  bill,  or  other 
negotiable  security  or  paper,  bona  fide  payable  at  any 
place  in  Canada  different  from  that  at  which  it  is  dis- 
counted, and  other  than  one  of  its  own  places  or  seats  of 
business,  branches,  agencies,  or  offices  of  discount  and  de- 
posit in  Canada,  receive  and  retain  in  addition  to  the  dis- 
count thereon,  a  sum  not  exceeding  one-half  of  one  per 
centum  on  the  amount  thereof,  to  defray  the  expenses  of 
agency  and  charges  in  collecting  the  same. 


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National    Monetary     Commission 

Bank  notes,  bonds,  &c. 

55.  The  bonds,  obligations,  and  bills  obligatory  or  of 
credit  of  the  bank  under  its  corporate  seal  and  signed  by 
the  president  or  vice-president  and  countersigned  by  a 
chashier  or  assistant  cashier,  which  shall  be  made  payable 
to  any  person  or  persons,  shall  be  assignable  by  endorse- 
ment thereon;  and  bills  or  notes  of  the  bank  signed  by 
the  president,  vice-president,  cashier,  or  other  officer  ap- 
pointed by  the  directors  of  the  bank  to  sign  the  same, 
promising  the  payment  of  money  to  any  person  or  persons, 
his,  her,  or  their  order,  or  to  the  bearer,  though  not  under 
the  corporate  seal  of  the  bank,  shall  be  binding  and  obliga- 
tory on  it  in  like  manner  and  with  the  like  force  and  effect 
as  they  would  be  upon  any  private  person,  if  issued  by 
him  in  his  private  or  natural  capacity,  and  shall  be  assign- 
able in  like  rrianner  as  if  they  were  so  issued  by  a  private 
person  in  his  natural  capacity:  Provided  always,  That 
nothing  in  this  act  shall  be  held  to  debar  the  directors  of 
the  bank  from  authorizing  or  deputing  from  time  to  time 
any  cashier,  assistant  cashier,  or  officer  of  the  bank,  or  any 
director  other  than  the  president  or  vice-president,  or  any 
cashier,  manager,  or  local  director  of  any  branch  or  office 
of  discount  and  deposit  of  the  bank,  to  sign  the  bills  of 
the  bank  intended  for  general  circulation,  and  payable  to 
order  or  to  bearer  on  demand. 

56.  All  bank  notes  and  bills  of  the  bank  whereon  the 
name  or  names  of  any  person  or  persons  entrusted  or  au- 
thorized to  sign  such  notes  or  bills  on  behalf  of  the  bank, 
shall  or  may  become  impressed  by  machinery  provided 
for  that  purpose  by  or  with  the  authority  of  the  bank, 
shall  be  and  shall  be  taken  to  be  good  and  valid  to  all 
intents  and  purposes,  as  if  such  notes  and  bills  had  been 
subscribed  in  the  proper  handwriting  of  the  person  or  per- 
sons entrusted  or  authorized  by  the  bank  to  sign  the  same, 
respectively,  and  shall  be  and  be  deemed  and  taken  to  be 


History    of    Banking    in     Canada 

bank  notes  and  bills  within  the  meaning  of  all  laws  and 
statutes  whatever,  and  shall  and  may  be  described  as  bank 
bills  or  notes  in  all  indictments  and  civil  or  criminal  pro- 
ceedings whatsoever,  any  law,  statute,  or  usage  to  the  con- 
trary notwithstanding. 

INSOLVENCY. 

57.  Any  suspension  b}^  the  bank  of  payment  of  any  of 
its  liabilities  as  they  accrue,  in  specie  or  Dominion  notes, 
shall,  if  it  continues  for  ninety  days,  constitute  the  bank 
insolvent  and  operate  a  forfeiture  of  its  charter,  so  far  as 
regards  the  issue  or  reissue  of  notes  and  other  banking 
operations;  and  the  charter  shall  remain  in  force  only  for 
the  purpose  of  enabling  the  directors  or  the  assignee  or 
assignees,  or  other  legal  authority , (if  any  be  appointed 
in  such  manner  as  may  by  law  be  provided)  to  make  the 
calls  mentioned  in  the  next  following  section  of  this  act 
and  to  wind  up  its  business;  and  any  such  assignee  or 
assignees  or  other  legal  authority  shall,  for  such  purposes, 
have  all  the  powers  of  the  directors. 

58.  In  the  event  of  the  property  and  assets  of  the  bank 
becoming  insufficient  to  pay  its  debts  and  liabilities,  the 
shareholders  of  the  bank  shall  be  liable  for  the  deficiency 
so  far  as  that  each  shareholder  shall  be  so  liable  to  an 
amount  (over  and  above  any  amount  not  paid  up  on  their 
respective  shares)  equal  to  the  amount  of  their  shares, 
respectively;  and  if  any  suspension  of  payment  in  full  in 
specie  or  Dominion  notes,  of  all  or  any  of  the  notes  or  other 
liabilities  of  the  bank  shall  continue  for  six  months,  the 
directors  may  and  shall  make  calls  on  such  shareholders, 
to  the  amount  they  may  deem  necessary  to  pay  all  the 
debts  and  liabilities  of  the  bank,  without  waiting  for  the 
collection  of  any  debts  due  to  it  or  the  sale  of  any  of  its 
assets  or  property;  such  calls  shall  be  made  at  intervals 
of  thirty  days  and .  upon  notice  to  be  given  thirty  days 


National    Monetary     Commission 

at  least  prior  to  the  day  on  which  such  caU  shall  be  pay- 
able; and  any  such  call  shall  not  exceed  twenty  per  cent 
on  each  share,  and  payment  thereof  may  be  enforced  in 
like  manner  as  for  calls  on  unpaid  stock,  and  the  first  of 
such  calls  shall  be  made  within  ten  days  after  the  expira- 
tion of  the  said  six  months;  and  any  failure  on  the  part 
of  any  shareholder  liable  to  such  call  to  pay  the  same 
when  due,  shall  operate  a  forfeiture  by  such  shareholder 
of  all  claim  in  or  to  any  part  of  the  assets  of  the  bank,  such 
call  and  any  further  call  thereafter  being  nevertheless  re- 
coverable from  him  as  if  no  such  forfeiture  had  been  in- 
curred. Provided  always,  That  nothing  in  this  section 
contained  shall  be  construed  to  alter  or  diminish  the  addi- 
tional liabilities  of  the  directors  hereinbefore  mentioned 
and  declared:  Provided  also,  That  if  the  bank  be  en  com- 
mandite and  the  principal  partners'  are  personally  liable, 
then,  in  case  of  any  such  suspension  such  liability  shall 
at  once  accrue  and  may  be  enforced  against  such  principal 
partners,  without  waiting  for  any  sale  or  discussion  of  the 
property  or  assets  of  the  bank,  or  other  preliminary  pro- 
ceedings whatever,  and  the  provision  respecting  calls 
shall  not  apply  to  such  bank. 

59.  Persons  who,  having  been  shareholders  in  the  bank, 
have  only  transferred  their  shares  or  any  of  them  to  others 
or  registered  the  transfer  thereof  within  one  month  before 
the  commencement  of  the  suspension  of  payment  by  the 
bank,  shall  be  liable  to  calls  on  such  shares  under  the  next 
preceding  section,  as  if  they  had  not  transferred  them, 
saving  their  recourse  against  those  to  whom  they  were 
transferred;  and  any  assignee  or  other  officer  or  person 
appointed  to  wind  up  the  affairs  of  the  bank,  in  case  of 
its  insolvency,  shall  have  the  powers  of  the  directors  with 
respect  to  such  calls :  Provided,  That  if  the  bank  be  en  com- 
mandite, the  liability  of  the  principal  partners  and  of  the 
commanditaires  shall  continue  for  such  time  after  their 
ceasing  to  be  such  as  may  be  provided  in  the  charter  of 


History    of    Banking    in     Canada 

the  bank,  and  the  foregoing  provisions  with  respect  to  the 
transfer  of  shares  or  calls  shall  not  apply  to  such  bank. 

OFFENCES   AND   PENALTIES. 

60.  If  any  cashier,  assistant  cashier,  manager,  clerk,  or 
servant  of  the  bank  secretes,  embezzles,  or  absconds  with 
any  bond,  obligation,  bill  obligatory  or  of  credit  or  other 
bill  or  note,  or  any  security  for  money,  or  any  money  or 
effects  entrusted  to  him  as  such  cashier,  assistant  cashier, 
manager,  clerk,  or  servant,  whether  the  same  belong  to 
the  said  bank  or  belong  to  any  person  or  persons,  body  or 
bodies,  politic  or  corporate,  or  institution  or  institutions 
and  be  lodged  with  the  said  bank,  the  said  cashier,  assist- 
ant cashier,  manager,  clerk,  or  servant  so  offending  and 
being  thereof  convicted  in  due  form  of  law,  shall  be  deemed 
guilty  of  felony,  and  shall  be  punished  by  imprisonment 
at  hard  labor  in  the  penitentiary  for  any  term  not  less  than 
two  years,  or  by  imprisonment  in  any  gaol  or  place  of 
confinement  for  any  term  less  than  two  years,  in  the  dis- 
cretion of  the  court. 

61.  If  any  president,  vice-president,  director,  principal 
partner  en  commandite,  manager,  cashier,  or  other  officer 
of  the  bank  wilfully  gives  or  concurs  in  giving  any  cred- 
itor of  the  bank  any  fraudulent,  undue,  or  unfair  prefer- 
ence over  other  creditors,  by  giving  security  to  such  cred- 
itor or  by  changing  the  nature  of  his  claim  or  otherwise 
howsoever,  he  shall  be  guilty  of  misdemeanor,  and  shall 
further  be  responsible  for  all  damages  sustained  by  any 
party  by  such  preference. 

62.  The  making  of  any  wilfully  false  or  deceptive  state- 
ment in  any  account,  statement,  return,  report,  or  other 
document  respecting  the  affairs  of  the  bank,  shall  unless 
it  amounts  to  a  higher  offence,  be  a  misdemeanor,  and 
any  and  every  president,  vice-president,  director,  princi- 
pal partner  en  commandite,  auditor,  manager,  cashier,  or 
other  officer  of  the  bank  preparing,  signing,  approving,  or 

203 


National    Monetary     Commission 

concurring  in  such  statement,  return,  report,  or  document 
or  using  the  same  with  intent  to  deceive  or  mislead  any- 
party,  shall  be  held  to  have  wilfully  made  such  false  state- 
ment, and  shall  further  be  responsible  for  all  damages  sus- 
tained by  such  party  in  consequence  thereof. 

63.  An}^  director  refusing  to  make  or  enforce,  or  to  con- 
cur in  making  or  enforcing  any  call  under  the  fifty-eighth 
section  of  this  act,  shall  be  deemed  guilty  of  a  misdemeanor 
and  shall  be  personally  responsible  for  any  damages  suf- 
fered by  such  default. 

64.  If  any  miller,  warehouseman,  master  of  a  vessel, 
forwarder,  carrier,  wharfinger,  keeper  of  a  cove,  yard,  har- 
bor, or  other  place  for  storing  timber,  deals,  staves,  boards, 
or  other  lumber,  curer  or  packer  of  pork,  or  dealer  in  wool, 
factor,  agent,  or  other  person,  or  any  clerk  or  person  in  his 
employ,  knowingly  and  wilfully  gives  to  any  person  any 
writing  purporting  to  be  a  receipt  for,  or  an  acknowledge- 
ment of  any  cereal  grain,  timber,  deals,  staves,  boards,  or 
other  lumber,  or  other  goods,  wares,  merchandize,  or  prop- 
erty, as  having  been  received  in  his  warehouse,  vessel, 
cove,  wharf,  or  other  place,  or  in  any  such  place  about 
which  he  is  employed ,  or  as  having  been  in  any  other  man- 
ner received  by  him  or  the  person  in  or  about  whose  busi- 
ness he  is  employed,  before  the  goods  or  property  named 
in  such  receipt,  acknowledgment,  or  writing  have  been  ac- 
tually so  received  by  or  delivered  to  him  or  his  employer, 
with  the  intent  to  mislead,  deceive,  injure,  or  defraud  any 
person  or  persons  whomsoever,  although  such  person  or 
persons  may  be  then  to  him  unknown;  or  if  any  person 
knowingly  and  wilfully  accepts  or  transmits  or  uses  any 
such  false  receipt,  acknowledgment,  or  writing,  the  persoji 
giving  and  the  person  accepting,  transmitting,  or  using 
such  false  receipt,  acknowledgment,  or  writing,  shall  sev- 
erally be  guilty  of  a  misdemeanor. 

65.  The  wilfully  making  any  false  statement  in  any 
such  receipt,  acknowledgment,  or  certificate  as  in  the  forty- 

204 


History     of    Banking    in     Canada 

sixth  section  of  this  act  mentioned,  or  the  wilfully  alien- 
ating or  parting  with,  or  not  delivering  to  the  holder  or 
indorsee  any  cereal  grain,  goods,  wares,  or  merchandize 
mentioned  in  such  receipt,  acknowledgment,  or  certificate, 
contrary  to  the  undertaking  therein  expressed  or  implied, 
shall  be  a  misdemeanor. 

66.  If  any  offence  in  either  of  the  two  next  preceding 
sections  mentioned  be  committed  by  the  doing  of  any- 
thing in  the  name  of  any  firm,  company,  or  copartnership 
of  persons,  the  person  by  whom  such  thing  is  actually 
done,  and  any  person  who  connives  at  the  doing  thereof, 
shall  be  deem.ed  guilty  of  the  offence,  and  not  any  other 
person. 

67.  Any  person  convicted  of  a  misdemeanor  under  this 
act  shall,  on  conviction,  be  liable  to  be  imprisoned  in  any 
gaol  or  place  of  confinement  for  any  term  not  exceeding 
two  years,  in  the  discretion  of  the  court  before  which  the 
conviction  shall  be  had. 

68.  No  private  person  or  party,  except  a  chartered  bank, 
shall  issue  or  re-issue,  make,  draw,  or  indorse,  any  bill, 
bond,  note,  check  or  other  instrument,  intended  to  circu- 
late as  money,  or  to  be  used  as  a  substitute  for  money,  for 
any  amount  whatever,  under  a  penalty  of  four  hundred 
dollars,  to  be  recovered,  with  costs,  in  any  court  having 
civil  jurisdiction  to  the  amount,  by  any  party  who  will 
sue  for  the  same;  and  one  half  of  such  sum  shall  belong 
to  the  party  suing  for  the  same,  and  the  other  half  to  Her 
Majesty,  for  the  public  uses  of  the  Dominion: 

The  intention  to  pass  any  such  instrument  as  money 
shall  be  presumed,  if  it  be  made  for  the  payment  of  a  less 
sum  than  twenty  dollars,  and  be  payable  either  in  form  or 
in  fact  to  the  bearer  thereof,  or  at  sight  or  on  demand, 
or  at  less  than  thirty  days  thereafter,  or  be  overdue,  or  be 
in  any  way  calculated  or  designed  for  circulation,  or  as  a 
substitute  for  money;  unless  such  instrument  be  a  check 
on  some  chartered  bank,  paid  by  the  maker  directly  to 

S.  Doc.  332,  61-2 14  205 


National    Monetary     Commission 

his  immediate  creditor,  or  a  promissory  note,  bill  of 
exchange,  bond  or  other  undertaking,  for  the  payment 
of  money  paid  or  delivered  by  the  maker  thereof  to  his 
immediate  creditor,  and  be  not  designed  to  circulate  as  a 
substitute  for  money: 

Provided  always,  That  the  Halifax  Banking  Company 
may,  until  the  end  of  the  year  1874,  continue  to  re-issue 
their  notes  now  in  circulation,  but  the  whole  of  such  notes 
shall,  as  far  as  practicable,  be  called  in  and  withdrawn  by 
the  end  of  the  said  year. 

NOTICES. 

69.  The  several  public  notices  by  this  act  required  to  be 
given  shall  be  given  by  advertisement  in  one  or  more  of 
the  newspapers  published  at  the  place  where  the  head 
office  of  the  bank  is  situate,  and  in  the  Canada  Gazette  or 
such  other  Gazette  as  shall  be  generally  known  and 
described  as  the  Official  Gazette  for  the  publication  of 
official  documents  and  notices  emanating  from  the  civil 
government  of  this  Dominion. 

FUTURE    IvEGISLATlON. 

70.  The  bank  shall  be  subject  to  such  provisions  of  any 
general  or  special  winding  up  act  to  be  passed  by  Parlia- 
ment as  may  be  declared  to  apply  to  banks ;  and  no  special 
act  which  Parliament  may  deem  it  right  to  pass  for 
winding  up  the  affairs  of  the  bank  in  case  of  its  insolvency 
shall  be  deemed  an  infringement  of  its  rights  or  of  the 
privileges  conferred  by  its  charter. 

71.  The  bank  shall  always  be  subject  to  any  general 
provisions  respecting  banks  which  Parliament  may  deem 
necessary  for  the  public  interest. 

SPECIAL   PROVISIONS   AS   TO    CERTAIN   BANKS. 

72.  The  Bank  of  British  North  America,  which,  by  the 
terms  of  its  present  charter,  is  to  be  subject  to  the  general 

206 


History    of    Banking    in     Canada 

laws  of  the  Dominion,  with  respect  to  banks  and  banking, 
shah  not  issue  or  re-issue  in  Canada  any  note  for  a  less 
sum  than  four  dollars,  and  any  such  note  of  the  said  bank 
outstanding  shall  be  called  in  and  redeemed  as  soon  as 
practicable;  and  the  provisions  contained  in  the  ninth, 
twelfth,  thirteenth,  fourteenth,  sixteenth,  forty-fifth,  forty- 
sixth,  forty-seventh,  forth-eighth,  forty-ninth,  fiftieth, 
fifty-first,  fifty-second,  fifty-third,  fifty-fourth,  sixtieth, 
sixty -first,  sixty-second,  sixty-fourth,  sixty-fifth,  sixty- 
sixth,  sixty-seventh,  sixty-ninth,  and  seventy-first  sec- 
tions of  this  act,  shall  apply  to  the  said  bank;  those  con- 
tained in  the  other  sections  shall  not  apply  to  it. 

73.  This  act  shall  not  apply  to  any  now  existing  bank 
not  mentioned  in  the  schedule  thereunto  annexed  (except 
the  Bank  of  British  North  America  to  the  extent  aforesaid 
and  La  Banque  du  Peuple  to  the  extent  hereinafter  men- 
tioned) unless  the  directors  of  such  bank  shall,  by  special 
resolution,  apply  to  the  treasury  board,  that  the  provisions 
of  this  act  may  be  extended  to  such  bank,  nor  unless  the 
treasury  board  allows  such  application,  and  upon  publi- 
cation in  the  Official  Gazette  of  such  resolution,  and  of  the 
minute  of  the  treasury  board  thereon,  allowing  such 
application,  such  bank  shall  come  under  the  provisions  of 
this  act. 

74.  In  pursuance  of  the  application  made  by  the  Bank 
of  Nova  Scotia  in  that  behalf,  it  shall  be  lawful  for  the 
shareholders  of  the  said  bank,  at  any  special  general 
meeting  called  for  the  purpose,  and  by  a  by-law  to  be 
passed  thereat,  to  reduce  the  capital  and  shares  of  the 
said  bank  by  an  amount  not  exceeding  thirteen  per  cent 
thereof  respectively,  and  the  shares  and  capital  shall 
thereafter  be  reckoned  at  the  amount  to  which  they  shall 
be  so  reduced. 

75.  Sections  four,  thirty-nine  to  fifty-four,  both  inclu- 
sive, sixty,  sixty-one  and  sixty-two,  and  sixty-four  to 
sixty-eight,  both  inclusive,  shall  apply  to  La  Banque  du 

207 


National    Monetary     Commission 

Peuple  from  and  after  the  passing  of  this  act  and  all  the 
other  provisions  of  this  act  (except  those  contained  in 
sections  one,  two,  three,  five,  six,  seven,  twenty-seven, 
twenty-nine,  thirty,  thirty-one,  thirty -two,  thirty- three, 
thirty-five,  thirty-six,  thirty-seven,  fifty-seven,  fifty- 
eight,  fifty-nine,  sixty-three,  seventy,  seventy-two, 
seventy- three,  and  seventy-four,  and  so  much  of  section 
twenty-eight  as  is  declared  not  to  apply  to  banks  en  com- 
mandite) shall  apply  from  and  after  the  first  day  of  July 
next  to  La  Banque  du  Peuple,  provided  that  wherever  the 
word  "directors"  is  used  in  any  of  the  sections  which 
apply  to  the  said  bank  it  shall  be  read  and  construed  as 
meaning  the  principal  partners  or  members  of  the  corpora- 
tion of  the  said  bank ;  and  so  much  of  the  act  incorporating 
the  said  bank  or  of  any  act  amending  or  continuing  it  as 
may  be  inconsistent  with  any  section  of  this  act  applying 
to  the  said  bank  or  which  makes  any  provision  in  any 
matter  provided  for  by  the  said  sections  other  than  such 
as  is  hereby  made,  is  hereby  repealed. 

REPEALING    AND    SAVING    CLAUSES. 

76.  The  act  passed  in  the  thirty-third  year  of  Her  Maj- 
esty's reign,  chaptered  eleven,  and  intituled  "An  act 
respecting  banks  and  banking,"  is  hereby  repealed;  and 
the  act  passed  in  the  thirty-first  year  of  Her  Majesty's 
reign,  and  intituled  "An  act  respecting  banks,"  is  hereby 
repealed  in  so  far  as  respects  banks  to  which  this  act 
applies,  including  the  Bank  of  British  North  America  and 
La  Banque  du  Peuple,  and  shall  cease  to  apply  to  them 
after  the  passing  of  this  act  (or  after  they  respectively 
come  under  its  provisions,  if  they  are  now  existing  banks 
and  not  mentioned  in  the  schedule),  except  as  to  rights 
theretofore  acquired  under  or  ofl^ences  committed  against 
it,  but  shall  remain  in  force  as  regards  other  banks  until 
the  end  of  the  session  of  Parliament  commencing  next 


2C8 


History    of    Banking    in     Canada 

after  the  first  day  of  January,  in  the  year  of  our  Lord  one 
thousand  eight  hundred  and  seventy- two. 

7y.  Nothing  in  this  act  contained  shall  affect  any  case 
pending  when  it  shall  come  into  force,  but  such  case  shall 
be  decided  as  if  this  act  had  not  been  passed. 

Schedule. 

Banks  whose  charters  are  continued  by  this  act. 

The  Bank  of  Montreal. 

The  Quebec  Bank. 

The  City  Bank. 

The  Niagara  District  Bank. 

Molson's  Bank. 

The  Bank  of  Toronto. 

The  Ontario  Bank. 

The  Eastern  Townships  Bank. 

La  Banque  Nationale. 

La  Banque  Jacques  Cartier. 

The  Merchants'  Bank  of  Canada. 

The  Royal  Canadian  Bank. 

The  Union  Bank  of  Lower  Canada. 

The  Canadian  Bank  of  Commerce. 

The  Mechanics'  Bank. 

The  Dominion  Bank. 

The  Merchants'  Bank  of  Halifax. 

The  Bank  of  Nova  Scotia. 

The  Bank  of  Yarmouth. 


2og 


Appendix  II. 
THE  CONSOLIDATED  CANADIAN  BANK  ACT. 

REVISED   STATUTES   OF    CANADA,    1906. 

Chap.  29. — An  Act  Respecting  banks  and  banking. 

SHORT  TiTivE. 

1.  This  act  may  be  cited  as  the  bank  act.  (53  V,  c.  31, 
s.  I.) 

INTERPRETATION. 

2.  In  this  act,  unless  the  context  otherwise  requires,  (a) 
"bank"  means  any  bank  to  which  this  act  appUes;  (b) 
"minister"  means  the  minister  of  finance  and  receiver 
general;  (c)  "association"  means  the  Canadian  Bankers' 
Association,  incorporated  by  the  act  passed  in  the  session 
held  in  the  sixty-third  and  sixty-fourth  years  of  Her  late 
Majesty's  reign,  chapter  ninety-three,  intituled  "An  act 
to  incorporate  the  Canadian  Bankers'  Association;"  (d) 
"curator"  means  any  person  appointed  under  the  author- 
ity of  this  act  by  the  Canadian  Bankers'  Association  to 
supervise  the  affairs  of  any  bank  which  has  suspended  pay- 
ment in  specie  or  Dominion  notes  of  any  of  its  liabilities  as 
they  accrue;  (e)  "ciiculation  fund"  means  the  fund  here- 
tofore established  and  continued  by  the  authority  of  this 
act  under  the  name  of  the  "bank  circulation  redemption 
fund;"  (/)  "goods,  wares,  and  merchandise"  includes,  in 
addition  to  the  things  usually  understood  thereby,  timber, 
deals,  boards,  staves,  saw  logs,  and  other  lumber,  petro- 
leum, crude  oil,  and  all  agricultural  produce  and  other 
articles  of  commerce;  (g)  "warehouse  receipt"  (i)  means 
any  receipt  given  by  any  person  for  any  goods,  wares,  or 
merchandise  in  his  actual  visible  and  continued  possession 


History    of    Banking    in     Canada 

as  bailee  thereof  in  good  faith  and  not  as  of  his  own  prop- 
erty, and  (ii)  includes  receipts,  given  by  any  person  who  is 
the  owner  or  keeper  of  a  harbour,  cove,  pond,  wharf,  yard, 
warehouse,  shed,  storehouse,  or  other  place  for  the  storage 
of  goods,  wares,  or  merchandise,  for  goods,  wares,  and  mer- 
chandise delivered  to  him  as  bailee,  and  actually  in  the 
place  or  in  one  or  more  of  the  places  owned  or  kept  by  him, 
whether  such  person  is  engaged  in  other  business  or  not, 
and  (iii)  includes  also  receipts  given  by  any  person  in 
charge  of  logs  or  timber  in  transit  from  timber  limits  or 
other  lands  to  the  place  of  destination  of  such  logs  or  tim- 
ber; (/0"bill  of  lading"  includes  all  receipts  for  goods, 
wares,  or  merchandise,  accompanied  by  an  undertaking  to 
transport  the  same  from  the  place  where  they  were  re- 
ceived to  some  other  place,  by  any  mode  of  carriage  what- 
ever, whether  by  land  or  water,  or  partly  by  land  and 
partly  by  water;  {i)  "manufacturer"  includes  manufac- 
turers of  logs,  timber  or  lumber,  maltsters,  distillers, 
brewers,  refiners  and  producers  of  petroleum,  tanners, 
curers,  packers,  canners  of  meat,  pork,  fish,  fruit,  or  vege- 
tables, and  any  person  who  produces  by  hand,  art,  process, 
or  mechanical  means  any  goods,  wares,  or  merchandise; 
(y)  "  president  "  does  not  include  an  honorary  president. 

2.  Where  by  this  act  any  public  notice  is  required  to  be 
given  the  notice  shall,  unless  otherwise  specified,  be  given 
by  advertisement  (a)  in  one  or  more  newspapers  pub- 
lished at  the  place  where  the  head  office  of  the  bank  is 
situate  and  {b)  in  the  Canada  Gazette.  (53  V,  c.  31, 
ss.  2,  54,  and  102;  63-64  V,  c.  26,  ss.  3  and  24;  4-5  B. 
VII,  c.  4,  s.  4.) 

APPLICATION. 

General. 

3,  The  provisions  of  this  act  apply  to  the  several  banks 
enumerated  in  Schedule  A  to  this  act,  and  to  every  bank 
incorporated  after  the  first  day  of  January,  one  thousand 


National     Monetary     Commission 

nine  hundred  and  five,  whether  this  act  is  specially  men- 
tioned in  its  act  of  incorporation  or  not,  but  not  to  any- 
other  bank,  except  as  hereinafter  specially  provided.  (53 
V,  c.  31,  s.  3.) 

4.  The  charters  or  acts  of  incorporation,  and  any  acts  in 
amendment  thereof,  of  the  several  banks  enumerated  in 
Schedule  A  to  this  act  are  continued  in  force  until  the  first 
day  of  July,  one  thousand  nine  hundred  and  eleven,  so  far 
as  regards,  as  to  each  of  such  banks,  (a)  the  incorporation 
and  corporate  name;  (6)  the  amount  of  the  authorized 
capital  stock ;  (c)  the  amount  of  each  share  of  such  stock ; 
and  {d)  the  chief  place  of  business;  subject  to  the  right  of 
each  of  such  banks  to  increase  or  reduce  its  authorized 
capital  stock  in  the  manner  hereinafter  provided. 

2 .  As  to  all  other  particulars  this  act  shall  form  and  be 
the  charter  of  each  of  the  said  banks  until  the  first  day  of 
July,  one  thousand  nine  hundred  and  eleven. 

3.  Nothing  in  this  section  shall  be  deemed  to  continue  in 
force  any  charter  or  act  of  incorporation,  if,  or  in  so  far  as  it 
is,  under  the  terms  thereof,  or  under  the  terms  of  this  act 
or  of  any  other  act  passed  or  to  be  passed,  forfeited  or 
rendered  void  by  reason  of  the  nonperformance  of  the  con- 
ditions of  such  charter  or  act  of  incorporation,  or  by  reason 
of  insolvency,  or  for  any  other  reason.  (63-64  V,  c.  26, 
s.  6.) 

Banks  in  course  of  winding  up. 

5.  The  provisions  of  this  act  shall  continue  to  apply  to 
the  banks  named  in  Schedule  A  to  the  bank  act,  passed 
in  the  fifty-third  year  of  Her  late  Majesty's  reign,  chapter 
thirty-one,  and  not  named  in  Schedule  A  to  this  act,  but 
only  in  so  far  as  may  be  necessary  to  wind  up  the  business 
of  the  said  banks  respectively;  and  the  charters  or.  acts 
of  incorporation  of  the  said  banks,  and  any  acts  in  amend- 
ment thereof,  or  any  acts  in  relation  to  the  said  banks  now 


History    of    Banking    in     Canada 

in  force,  shall  respectively  continue  in  force  for  the  pur- 
poses of  winding  up,  and  for  such  purposes  only. 

2.  The  sections  of  this  act  enumerated  in  the  next  fol- 
lowing section  shall  continue  to  apply  to  the  Bank  of  Brit- 
ish Columbia,  but  only  in  so  far  as  may  be  necessary  to 
wind  up  the  business  of  the  bank.      (63-64  V,  c.  26,  s.  5.) 

The  Bank  of  British  North  America. 

6.  The  sections  of  this  act  which  apply  to  the  Bank  of 
British  North  America  are  sections  one,  two,  six,  seven, 
thirty-nine,  forty-five,  fifty-seven  to  sixty-one,  both  in- 
clusive, sixty-three  to  one  hundred  and  twenty-four,  both 
inclusive,  one  hundred  and  thirty,  one  hundred  and 
thirty-two  to  one  hundred  and  fifty-two,  both  inclusive, 
and  one  hundred  and  fifty -four  to  one  hundred  and  fifty- 
seven,  both  inclusive. 

2.  The  other  sections  of  this  act  do  not  apply  to  the 
Bank  of  British  North  America.  (53  V,  c.  31,  s.  6;  63-64 
V,  c.  26,  s.  7.) 

7.  For  the  purposes  of  the  several  sections  of  this  act 
made  applicable  to  the  Bank  of  British  North  America 
the  chief  office  of  the  Bank  of  British  North  America  shall 
be  the  office  of  the  bank  at  Montreal  in  the  Province  of 
Quebec.     (53  V,  c.  31,  s.  7.) 

INCORPORATION    AND    ORGANIZATION    OF    BANKS. 

8.  The  capital  stock  of  every  bank  hereafter  incorpo- 
rated, the  name  of  the  bank,  the  place  where  its  chief 
office  is  to  be  situated,  and  the  name  of  the  provisional 
directors,  shall  be  declared  in  the  act  of  incorporation  of 
every  such  bank  respectively.     (53  V,  c.  31,  s.  9.) 

9.  An  act  of  incorporation  of  a  bank  in  the  form  set 
forth  in  Schedule  B  to  this  act  shall  be  construed  to  con- 
fer upon  the  bank  thereby  incorporated  all  the  powers, 
privileges,  and  immunities,  and  to  subject  it  to  all  the 


:i3 


National     Monetary     Commission 

liabilities  and  provisions  set  forth  in  this  act.      (53  V,  c. 

3i>  s.  9.) 

10.  The  capital  stock  of  any  bank  hereafter  incorpo- 
rated shall  be  not  less  than  five  hundred  thousand  dollars, 
and  shall  be  divided  into  shares  of  one  hundred  dollars 
each.     (53  V,  c.  31,  s.  10.) 

1 1 .  The  number  of  provisional  directors  shall  be  not  less 
than  five. 

2.  The  provisional  directors  shaU  hold  office  until  direct- 
ors are  elected  by  the  subscribers  to  the  stock,  as  herein- 
after provided.     (53  V,  c.  31,  s.  11 ;  4-5  E.  VII,  c.  4,  s.  i.) 

12.  For  the  purpose  of  organizing  the  bank,  the  provi- 
sional directors  may,  after  giving  public  notice  thereof, 
cause  stock  books  to  be  opened,  in  which  shall  be  recorded 
the  subscriptions  of  such  persons  as  desire  to  become 
shareholders  in  the  bank. 

2.  Such  books  shall  be  opened  at  the  place  where  the 
chief  office  of  the  bank  is  to  be  situate,  and  elsewhere,  in 
the  discretion  of  the  provisional  directors. 

3.  Such  stock  books  may  be  kept  open  for  such  time  as 
the  provisional  directors  deem  necessary.  (53  V,  c.  31, 
s.  12.) 

13.  So  soon  as  a  sum  not  less  than  five  hundred  thou- 
sand dollars  of  the  capital  stock  of  the  bank  has  been  bona 
fide  subscribed,  and  a  sum  not  less  than  two  hundred  and 
fifty  thousand  dollars  thereof  has  been  paid  to  the  minister, 
the  provisional  directors  may,  by  pubUc  notice,  published 
for  at  least  four  weeks,  call  a  meeting  of  the  subscribers 
to  the  said  stock,  to  be  held  in  the  place  named  in  the  act 
of  incorporation  as  the  chief  place  of  business  of  the  bank, 
at  such  time  and  at  such  place  therein  as  set  forth  in  the 
said  notice. 

2.  The  subscribers  shall  at  such  meeting  (a)  determine 
the  day  upon  which  the  annual  general  meeting  of  the 
bank  is  to  be  held  and  (6)  elect  such  number  of  directors, 


!I4 


History    of    Banking    in     Canada 

duly  qualified  under  this  act,  not  less  than  five,  as  they 
think  necessary. 

3.  Such  directors  shall  hold  office  until  the  annual  gen- 
eral meeting  in  the  year  next  succeeding  their  election. 

4.  Upon  the  election  of  directors  as  aforesaid  the 
functions  of  the  provisional  directors  shall  case.  (53  V., 
c.  31,  s.  13;  4-5  E.  VII.,  c.  4,  s.  2.) 

14.  The  bank  shall  not  issue  notes  or  commence  the 
business  of  banking  until  it  has  obtained  from  the  treas- 
ury board  a  certificate  permitting  it  to  do  so. 

2.  No  appHcation  for  such  certificate  shall  be  made 
until  directors  have  been  elected  by  the  subscribers  to 
the  stock  in  the  manner  hereinbefore  provided.  (53  V., 
c.  31,  s.  14.) 

15.  No  certificate  shall  be  given  by  the  treasury  board 
until  it  has  been  shown  to  the  satisfaction  of  the  board, 
by  affidavit  or  otherwise,  that  all  the  requirements  of 
this  act  and  of  the  special  act  of  incorpration  of  the 
bank,  as  to  the  payment  required  to  be  made  to  the 
minister,  the  election  of  directors,  deposit  for  security 
for  note  issue,  or  other  preliminaries,  have  been  complied 
with,  and  that  the  sum  so  paid  is  then  held  by  the  minister. 

2.  No  such  certificate  shall  be  given  except  within 
one  year  from  the  passing  of  the  act  of  incorporation  of 
the  bank  applying  for  the  said  certificate.  (53  V.,  c.  31, 
s.  15.) 

16.  If  the  bank  does  not  obtain  a  certificate  from  the 
treasury  board  within  one  year  from  the  time  of  the 
passing  of  its  act  of  incorporation,  all  the  rights,  powers, 
and  privileges  conferred  on  the  bank  by  its  act  of  incor- 
poration shall  thereupon  cease  and  determine,  and  be  of 
no  force  or  effect  whatever.     (53  V.,  c.  31,  s.  16.) 

17.  Upon  the  issue  of  the  certificate  in  manner  herein- 
before provided,  the  minister  shall  forthwith  pay  to  the 
bank  the  amount  of  money  so  deposited  with  him  as 
aforesaid,    without    interest,    after    deducting    therefrom 

215 


National     M  on  et  ar  y     Commission 

the  sum  of  five  thousand  doUars  required  to  be  deposited 
under  the  provisions  of  this  act  for  the  securing  of  the 
notes  issued  by  the  bank. 

2.  In  case  no  certificate  is  issued  by  the  treasury 
board  within  the  time  Hmited  for  the  issue  thereof,  the 
amount  so  deposited  shall  be  returned  to  the  person 
depositing  the  same. 

3.  In  no  case  shall  the  minister  be  under  any  obligation 
to  see  to  the  proper  application  in  any  way  of  the  amount 
so  returned.      (53  V.,  c.  31,  s.  17.) 

INTERNAL   REGULATIONS. 

18.  The  shareholders  of  the  bank  may  regulate,  by 
by-law,  the  following  matters  incident  to  the  manage- 
ment and  administration  of  the  affairs  of  the  bank,  that 
is  to  say:  (a)  The  day  upon  which  the  annual  general 
meeting  of  the  shareholders  for  the  election  of  directors 
shall  be  held;  (5)  the  record  to  be  kept  of  proxies,  and 
the  time,  not  exceeding  thirty  days,  within  which  proxies 
must  be  produced  and  recorded  prior  to  a  meeting  in 
order  to  entitle  the  holder  to  vote  thereon;  (c)  the  num- 
ber of  the  directors,  which  shall  be  not  less  than  five,  and 
the  quorum  thereof,  which  shall  be  not  less  than  three; 
[6)  subject  to  the  provisions  hereinafter  contained,  the 
quaHfications  of  directors;  {e)  the  method  of  filling  va- 
cancies in  the  board  of  directors,  whenever  the  same 
occur  during  each  year;  (/)  the  time  and  proceedings  for 
the  election  of  directors,  in  case  of  a  failure  of  any  elec- 
tion on  the  day  appointed  for  it;  {g)  the  remuneration 
of  the  president,  vice-president  and  other  directors; 
and  iji)  the  amount  of  discounts  or  loans  which  may 
be  made  to  directors,  either  jointly  or  severally,  or 
to  any  one  firm  or  person,  or  to  any  shareholder,  or  to 
corporations. 

2.  The  shareholders  may  authorize  the  directors  to 
establish  guarantee   and  pension  funds   for   the   officers 

216 


History     of    Banking    in    Canada 

and  employees  of  the  bank  and  their  famihes,  and  to  con- 
tribute thereto  out  of  the  funds  of  the  bank. 

3.  Until  it  is  otherwise  prescribed  by  by-law  under 
this  section,  the  by-laws  of  the  bank  on  any  matter 
which  may  be  regulated  by  by-law  under  this  section 
shall  remain  in  force,  except  as  to  any  provision  fixing 
the  qualification  of  directors  at  an  amount  less  than  that 
prescribed  by  this  act.  (53  V.,  c.  31,  s.  18;  4-5  E.  VII., 
c.  4,  s.  3.) 

19.  The  stock,  property,  affairs,  and  concerns  of  the 
bank  shall  be  managed  by  a  board  of  directors,  who  shall 
be  elected  annually  in  manner  hereinafter  provided,  and 
shall  be  eligible  for  reelection.      (53  V.,  c.  31,  s.  19.) 

20.  Each  director  shall  (a)  when  the  paid-up  capital 
stock  of  the  bank  is  one  million  dollars  or  less,  hold  stock 
of  the  bank  on  which  not  less  than  three  thousand  dollars 
have  been  paid  up;  (6)  when  the  paid-up  capital  stock 
of  the  bank  is  over  one  million  dollars  and  does  not 
exceed  three  million  dollars,  hold  stock  of  the  bank  on 
which  not  less  than  four  thousand  dollars  have  been 
paid  up;  and  (c)  when  the  paid-up  capital  stock  of  the 
bank  exceeds  three  million  dollars,  hold  stock  of  the  bank 
on  which  not  less  than  five  thousand  dollars  have  been 
paid  up. 

2.  No  person  shall  be  elected  or  continue  to  be  a 
director  unless  he  holds  stock  paid  up  to  the  amount 
required  by  this  act,  or  such  greater  amount  as  is  required 
by  any  by-law  in  that  behalf. 

3.  A  majority  of  the  directors  shall  be  natural  born  or 
naturalized  subjects  of  His  Majesty.  (53  V.,  c.  31,  ss.  18 
and  19,) 

21.  The  directors  shall  be  elected  by  the  shareholders 
on  such  day  in  each  year  as  is  appointed  by  the  charter 
or  by  any  by-law  of  the  bank  and  at  such  time  of  the  day 
as  the  directors  appoint. 


217 


National     M on  et ar y     Commission 

2.  The  election  shall  take  place  at  the  head  office  of 
the  bank. 

3.  Public  notice  of  the  election  shall  be  given  by  the 
directors  by  publishing  such  notice,  for  at  least  four  weeks 
previously  to  the  time  of  holding  the  election,  in  a  news- 
paper published  at  the  place  where  the  head  office  of  the 
bank  is  situate.     (53  V.,  c.  31,  s.  19.) 

22.  The  persons,  to  the  number  authorized  to  be  elected, 
who  have  the  greatest  number  of  votes  at  any  election 
shall  be  directors.     (53  V.,  c.  31,  s.  19.) 

23.  If  it  happens  at  any  election  that  two  or"  more 
persons  have  an  equal  number  of  votes,  and  the  election 
or  nonelection  of  one  or  more  of  such  persons  as  a 
director  or  directors  depends  on  such  equality,  then 
the  directors  who  have  a  greater  number  of  votes, 
or  the  majority  of  them,  shall,  in  order  to  complete  the 
full  number  of  directors,  determine  which  of  the  said 
persons  so  having  an  equal  number  of  votes  shall  be  a 
director  or  directors.     (53  V.,  c.  31,  s.  19.) 

24.  The  directors,  as  soon  as  may  be  after  their  elec- 
tion, shall  proceed  to  elect,  by  ballot,  two  of  their  num- 
ber to  be  president  and  vice-president,  respectively. 

2.  The  directors  may  also  elect  by  ballot  one  of  their 
number  to  be  honorary  president.  (53  V.,  c.  31,  s.  19; 
4-5  E.  VII.,  c.  4,  s.  4.) 

25.  If  a  vacancy  occurs  in  the  board  of  directors  the 
vacancy  shall  be  filled  in  the  manner  provided  by  the 
by-laws:  Provided,  That  if  the  vacancy  is  not  filled  the 
acts  of  a  quorum  of  the  remaining  directors  shall  not  be 
thereby  invalidated.     (53  V.,  c.  31,  s.  19.) 

26.  If  a  vacancy  occurs  in  the  office  of  the  president  or 
vice-president,  the  directors  shall,  from  among  them- 
selves, elect  a  president  or  vice-president,  who  shall  con- 
tinue in  office  for  the  remainder  of  the  year.  (53  V.,  c. 
31,  s.  19.) 


218 


History    of    Banking    in     Canada 

27.  If  an  election  of  directors  is  not  made  on  the  day 
appointed  for  that  purpose,  such  election  may  take  place 
on  any  other  day,  according  to  the  by-laws  made  by  the 
shareholders  in  that  behalf. 

2.  The  directors  in  office  on  the  day  appointed  for  the 
election  of  directors  shall  remain  in  office  until  a  new  elec- 
tion is  made.     (53  V.,  c.  31,  s.  20.) 

28.  The  president,  or  in  his  absence  the  vice-president, 
shall  preside  at  all  meetings  of  the  directors. 

2.  If  at  any  meeting  of  the  directors  both  president 
and  vice-president  are  absent,  one  of  the  directors  pres- 
ent, chosen  to  act  pro  tempore,  shall  preside. 

3.  The  president,  vice-president,  or  president  pro  tem- 
pore so  presiding  shall  vote  as  a  director,  and  shall,  if 
there  is  an  equal  division  on  any  question,  also  have  a 
casting  vote.     (53  V.,  c.  31,  s.  21.) 

29.  The  directors  may  make  by-laws  and  regulations 
not  repugnant  to  the  provisions  of  this  act  or  to  the  laws 
of  Canada  with  respect  to  (a)  the  management  and  dispo- 
sition of  the  stock,  property,  affairs,  and  concerns  of  the 
bank;  (6)  the  duties  and  conduct  of  the  officers,  clerks, 
and  servants  employed  therein;  and  (c)  all  such  other 
matters  as  appertain  to  the  business  of  a  bank. 

2 .  All  by-laws  of  the  bank  heretofore  lawfully  made  and 
now  in  force  with  regard  to  any  matter  respecting  which 
the  directors  may  make  by-laws  under  this  section,  in- 
cluding any  by-laws  for  the  establishing  of  guarantee  and 
pension  funds  for  the  employees  of  the  bank,  shall  remain 
in  force  until  they  are  repealed  or  altered  by  other  b}^- 
laws  made  under  this  act.      (53  V.,  c.  31,  s.  22.) 

30.  The  directors  may  appoint  as  many  officers,  clerks, 
and  servants  as  they  consider  necessary  for  the  carrying 
on  of  the  business  of  the  bank. 

2.  The  directors  may  also  appoint  a  director  or  direct- 
ors for  any  branch  of  the  bank. 


219 


National    Monetary     Commission 

3.  Such  officers,  clerks,  and  servants  may  be  paid  such 
salaries  and  allowances  as  the  directors  consider  necessary. 

4.  The  directors  shall,  before  permitting  any  cashier, 
officer,  clerk,  or  servant  of  the  bank  to  enter  upon  the 
duties  of  his  office,  require  him  to  give  a  bond,  guarantee, 
or  other  security  to  the  satisfaction  of  the  directors  foi 
the  due  and  faithful  performance  of  his  duties.  (53  V., 
c.  31,  s.  23.) 

31.  A  special  general  meeting  of  the  shareholders  of  the 
bank  may  be  called  at  any  time  by  (a)  the  directors  of  the 
bank  or  any  four  of  them;  or  (6)  any  number  not  less 
than  twenty -five  of  the  shareholders,  acting  by  them- 
selves or  by  their  proxies,  who  are  together  proprietors  of 
at  least  one-tenth  of  the  paid-iip  capital  stock  of  the  bank. 

2.  Such  directors  or  shareholders  shall  give  six  weeks' 
previous  public  notice,  specifying  therein  the  object  of 
such  meeting. 

3.  Such  meeting  shall  be  held  at  the  usual  place  of 
meeting  of  the  shareholders. 

4.  If  the  object  of  the  special  general  meeting  is  to  con- 
sider the  proposed  removal,  for  maladministration  or 
other  specified  and  apparently  just  cause,  of  the  president 
or  vice-president,  or  of  a  director  of  the  bank,  and  if  a 
majority  of  the  votes  of  the  shareholders  at  the  meeting 
is  given  for  such  removal,  a  director  to  replace  him  shall 
be  elected  or  appointed  in  the  manner  provided  by  the 
by-laws  of  the  bank,  or,  if  there  are  no  by-laws  providing 
therefor,  by  the  shareholders  at  the  meeting. 

5.  If  it  is  the  president  or  vice-president  who  is  removed, 
his  office  shall  be  filled  by  the  directors  in  the  manner  pro 
vided  in  case  of  a  vacancy  occurring  in  the  office  of  presi- 
dent or  vice-president.     (53  V.,  c.  31,  s.  24.) 

32.  Every  shareholder  shall,  on  all  occasions  on  which 
the  votes  of  the  shareholders  are  taken,  have  one  vote  for 
each  share  held  by  him  for  at  least  thirty  days  before  the 
time  of  meeting. 


Hi  story    of    Banking    in     Canada 

2.  In  all  cases  when  the  votes  of  the  shareholders  are 
taken,  the  voting  shall  be  by  ballot. 

3.  All  questions  proposed  for  the  consideration  of  the 
shareholders  shall  be  determined  by  a  majority  of  the 
votes  of  the  shareholders  present  in  person  or  represented 
by  proxy. 

4.  The  chairman  elected  to  preside  at  any  meeting  of 
the  shareholders  shall  vote  as  a  shareholder  only,  unless 
there  is  a  tie,  in  which  case  he  shall,  except  as  to  the  elec- 
tion of  a  director,  have  a  casting  vote. 

5.  If  two  or  more  persons  are  joint  holders  of  shares, 
any  one  of  the  joint  holders  may  be  empowered,  by  letter 
of  attorney  from  the  other  joint  holder  or  holders,  or  a 
majority  of  them,  to  represent  the  said  shares,  and  to  vote 
accordingly. 

6.  Shareholders  may  vote  by  proxy,  but  no  person  other 
than  a  shareholder  eligible  to  vote  shall  be  permitted  to 
vote  or  act  as  proxy. 

7.  No  manager,  cashier,  clerk  or  other  subordinate  offi- 
cer of  the  bank  shall  vote  either  in  person  or  by  proxy,  or 
hold  a  proxy  for  the  purpose  of  voting. 

8.  No  appointment  of  a  proxy  to  vote  at  any  meeting  of 
the  shareholders  of  the  bank  shall  be  valid  for  that  pur- 
pose, unless  it  has  been  made  or  renewed  in  writing  within 
the  two  years  last  preceding  the  time  of  such  meeting. 

9.  No  shareholder  shall  vote,  either  in  person  or  by 
proxy,  on  any  question  proposed  for  the  consideration  of 
the  shareholders  of  the  bank  at  any  meeting  of  the  share- 
holders, or  in  any  case  in  which  the  votes  of  the  share- 
holders of  the  bank  are  taken,  unless  he  has  paid  all  calls 
made  by  the  directors  which  are  then  due  and  payable. 
(53  v.,  c.  31,  s.  25.) 


S.  Doc.  332,  61-2 15 


National     Monetary     Commission 

CAPlTAIv   STOCK. 

33.  The  capital  stock  of  the  bank  may  be  increased, 
from  time  to  time,  by  such  percentage,  or  by  such  amount, 
as  is  determined  upon  by  by-law  passed  by  the  share- 
holders, at  the  annual  general  meeting,  or  at  any  special 
general  meeting  called  for  the  purpose. 

2.  No  such  by-law  shall  come  into  operation,  or  be  of 
any  force  or  effect,  unless  and  until  a  certificate  approving 
thereof  has  been  issued  by  the  treasury  board. 

3.  No  such  certificate  shall  be  issued  by  the  treasury 
board  unless  application  therefor  is  made  within  three 
months  from  the  time  of  the  passing  of  the  by-law,  nor 
unless  it  appears  to  the  satisfaction  of  the  treasury  board 
that  a  copy  of  the  by-law,  together  with  notice  of  intention 
to  apply  for  the  certificate,  has  been  published  for  at  least 
four  weeks  in  the  Canada  Gazette  and  in  one  or  more 
newspapers  published  in  the  place  where  the  chief  office 
or  place  of  business  of  the  bank  is  situate. 

4.  Nothing  herein  contained  shall  be  construed  to  pre- 
vent the  treasury  board  from  refusing  to  issue  such  cer- 
tificate if  it  thinks  best  so  to  do.     (53  V.,  c.  31,  s.  26.) 

34.  Any  of  the  original  unsubscribed  capital  stock,  or  of 
the  increased  stock  of  the  bank,  shall,  when  the  directors 
so  determine,  be  allotted  to  the  then  shareholders  of  the 
bank  pro  rata,  and  at  such  rate  as  is  fixed  by  the  directors: 
Provided,  That  (a)  no  fraction  of  a  share  shall  be  so  allotted, 
and  (6)  in  no  case  shall  a  rate  be  fixed  by  the  directors, 
which  will  make  the  premium,  if  any,  paid  or  payable  on 
the  stock  so  allotted,  exceed  the  percentage  which  the  re- 
serve fund  of  the  bank  then  bears  to  the  paid-up  capital 
stock  thereof. 

2.  Any  of  such  allotted  stock  which  is  not  taken  up  by 
the  shareholder  to  whom  the  allotment  has  been  made 
within  six  months  from  the  time  when  notice  of  the  allot- 
ment was  mailed  to  his  address,  or  which  he  declines  to 


History    of    Banking    in     Canada 

accept,  may  be  offered  for  subscription  to  the  public,  in 
such  manner  and  on  such  terms  as  the  directors  prescribe. 
(53  v.,  c.  31,  s.  27.) 

35.  The  capital  stock  of  the  bank  may  be  reduced  by 
by-law  passed  by  the  shareholders  at  the  annual  general 
meeting,  or  at  a  special  general  meeting  called  for  the  pur- 
pose. 

2.  No  such  by-law  shall  come  into  operation  or  be  of 
force  or  effect  until  a  certificate  approving  thereof  has 
been  issued  by  the  treasury  board. 

3.  No  such  certificate  shall  be  issued  by  the  treasury 
board  unless  application  therefor  is  made  within  three 
months  from  the  time  of  the  passing  of  the  by-law,  nor 
unless  it  appears  to  the  satisfaction  of  the  board  that 
(a)  the  shareholders  voting  for  the  by-law  represent  a 
majority  in  value  of  all  the  shares  then  issued  by  the  bank; 
and  (6)  a  copy  of  the  by-law,  together  with  notice  of  inten- 
tion to  apply  to  the  treasury  board  for  the  issue  of  a  cer- 
tificate approving  thereof,  has  been  published  for  at  least 
four  weeks  in  the  Canada  Gazette  and  in  one  or  more 
newspapers  published  in  the  place  where  the  chief  office 
or  place  of  business  of  the  bank  is  situate. 

4.  Nothing  herein  contained  shall  be  construed  to  pre- 
vent the  treasury  board  from  refusing  to  issue  the  certifi- 
cate if  it  thinks  best  so  to  do. 

5.  In  addition  to  evidence  of  the  passing  of  the  by-law, 
and  of  the  publication  thereof  in  the  manner  in  this 
section  provided,  statements  showing  (a)  the  amount  of 
stock  issued,  {h)  the  number  of  shareholders  represented 
at  the  meeting  at  which  the  by-law  passed,  (c)  the  amount 
of  stock  held  by  each  such  shareholder,  {d)  the  number  of 
shareholders  who  voted  for  the  by-law,  (e)  the  amount  of 
stock  held  by  each  of  such  last-mentioned  shareholders, 
(/)  the  assets  and  liabilities  of  the  bank  in  full,  and  {g)  the 
reasons  and  causes  why  the  reduction  is  sought  shall  be 


223 


National    Monetary     Commission 

laid  before  the  treasury  board  at  the  time  of  the  applica- 
tion for  the  issue  of  a  certificate  approving  the  by-law. 

6.  The  passing  of  the  by-law,  and  any  reduction  of  the 
capital  stock  of  the  bank  thereunder  shall  not  in  any  way 
diminish  or  interfere  with  the  liability  of  the  shareholders 
of  the  bank  to  the  creditors  thereof  at  the  time  of  the  issue 
of  the  certificate  approving  the  by-law. 

7.  If  in  any  case  legislation  is  sought  to  sanction  any 
reduction  of  the  capital  stock  of  any  bank,  a  copy  of  the 
by-law  or  resolution  passed  by  the  shareholders  in  regard 
thereto,  together  with  statements  similar  to  those  by  this 
section  required  to  be  laid  before  the  treasury  board,  shall, 
at  least  one  month  prior  to  the  introduction  into  Parlia- 
ment of  the  bill  relating  to  such  reduction,  be  filed  with 
the  minister. 

8.  The  capital  shall  not  be  reduced  below  the  amount 
of  two  hundred  and  fifty  thousand  dollars  of  paid-up  stock. 
(53  V.,c.  31,  s.  28.) 

SHARES    AND    CAI.I.S. 

36.  The  shares  of  the  capital  stock  of  the  bank  shall  be 
personal  property. 

2.  Books  of  subscription  may  be  opened  at  the  chief 
place  of  business  of  the  bank,  or  at  such  of  its  branches,  or 
at  such  place  or  places  in  the  United  Kingdom  or  in  any 
of  the  British  colonies  or  possessions  as  the  directors 
prescribe. 

3.  The  shares  shall  be  assignable  and  transferable  at 
any  of  the  places  aforesaid,  according  to  such  forms  and 
subject  to  such  rules  and  regulations  as  the  directors 
prescribe. 

4.  The  dividends  accruing  upon  any  shares  of  the 
capital  stock  of  the  bank  may  be  made  payable  at  any  of 
the  places  aforesaid. 

5.  The  directors  may  appoint  such  agents  in  the  United 
Kingdom,  or  in  any  of  the  British  colonies  or  possessions, 

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History    of    Banking    in     Canada 

for  the  purposes  of  this  section  as  they  deem  necessary. 
(53  v.,  c.  31,  s.  29.) 

37.  The  shares  of  the  capital  stock  shall  be  paid  in  by 
such  installments  and  at  such  times  and  places  as  the 
directors  appoint. 

2.  The  directors  may  cancel  any  subscription  for  any 
share  unless  a  sum  equal  to  ten  per  centum  at  least  on  the 
amount  subscribed  for  is  actually  paid  at  or  within  thirty 
days  after  the  time  of  subscribing. 

3.  Such  cancellation  shall  not,  in  the  event  of  insolvency, 
relieve  the  subscriber  as  hereinafter  provided  from  his 
liability  to  creditors.     (53  V.,  c.  31,  s.  30.) 

38.  The  directors  may  make  such  calls  of  money  from 
the  several  shareholders  for  the  time  being  upon  the  shares 
subscribed  for  by  them,  respectively,  as  they  find  neces- 
sary. 

2.  Such  calls  shall  be  made  at  intervals  of  not  less  than 
thirty  days. 

3.  .Notice  of  any  such  call  shall  be  given  at  least  thirty 
days  prior  to  the  day  on  which  the  call  is  payable. 

4.  No  such  call  shall  'exceed  ten  per  centum  of  each 
share  subscribed.      (53  V.,  c.  31,  s.  31.) 

39.  If  any  part  of  the  paid-up  capital  is  lost  the  directors 
shall,  if  all  the  subscribed  stock  is  not  paid  up,  forthwith 
make  calls  upon  the  shareholders  to  an  amount  equivalent 
to  the  loss :  Provided,  That  all  net  profits  shall  be  applied 
to  make  good  such  loss. 

2.  Any  such  loss  of  capital  and  the  calls,  if  any  made  in 
respect  thereof,  shall  be  mentioned  in  the  next  return 
made  by  the  bank  to  the  minister.      (53  V.,  c.  31,  s.  48.) 

40.  In  case  of  the  nonpayment  of  any  call,  the  directors 
may,  in  the  corporate  name  of  the  bank,  sue  for,  recover, 
collect,  and  get  in  any  such  call,  or  may  cause  and  declare 
the  shares  in  respect  of  which  any  such  call  is  made  to  be 
forfeited  to  the  bank.     (53  V.,  c.  31,  s.  32.) 


225 


National     Monetary     Commission 

41.  If  any  shareholder  refuses  or  neglects  to  pay  any 
installment  upon  his  shares  of  the  capital  stock  at  the  time 
appointed  therefor,  such  shareholder  shall  incur  a  penalty, 
to  the  use  of  the  bank,  of  a  sum  of  money  equal  to  ten 
per  centum  of  the  amount  of  such  shares 

2.  If  the  directors  declare  any  shares  to  be  forfeited  to 
the  bank  they  shall,  within  six  months  thereafter,  without 
any  previous  formality,  other  than  thirty  days'  public  no- 
tice of  their  intention  so  to  do,  sell  at  public  auction  the 
said  shares,  or  so  many  of  the  said  shares  as  shall,  after 
deducting  the  reasonable  expenses  of  the  sale,  yield  a  sum 
of  money  sufficient  to  pay  the  unpaid  instalments  due  on 
the  remainder  of  the  said  shares,  and  the  amount  of  pen- 
alties incurred  upon  the  whole. 

3.  The  president  or  vice-president,  manager,  or  cashier 
of  the  bank  shall  execute  the  transfer  to  the  purchaser  of 
the  shares  so  sold ;  and  such  transfer  shall  be  as  valid  and 
effectual  in  law  as  if  it  had  been  executed  by  the  original 
holder  of  the  shares  thereby  transferred. 

4.  The  directors,  or  the  shareholders,  at  a  general  meet- 
ing, may,  notwithstanding  anything  in  this  section  con- 
tained, remit,  either  in  whole  or  in  part,  and  conditionally 
or  unconditionally,  any  forfeiture  or  penalty  incurred  by 
the  nonpayment  of  instalments  as  aforesaid.      (53  V.,  c. 

31.  s.  33.) 

42.  In  any  action  brought  to  recover  any  money  due  on 
any  call  it  shall  not  be  necessary  to  set  forth  the  special 
matter  in  the  declaration  or  statement  of  claim,  but  it 
shall  be  sufficient  to  allege  that  the  defendant  is  the  holder 
of  one  share  or  more,  as  the  case  may  be,  in  the  capital 
stock  of  the  bank,  and  that  he  is  indebted  to  the  bank  for 
a  call  or  calls  upon  such  share  or  shares,  in  the  sum  to 
which  the  call  or  calls  amount,  as  the  case  may  be,  stating 
the  amount  and  number  of  the  calls. 


226 


History     of    Banking    in     Canada 

2.  It  shall  not  be  necessary,  in  any  such  action,  to 
prove  the  appointment  of  the  directors.  (53  V.,  c.  31, 
s.  34-) 

TRANSFER    AND    TRANSMISSION    OF    SHARES. 

43.  No  assignment  or  transfer  of  the  shares  of  the  cap- 
ital stock  of  the  bank  shall  be  valid  unless  (a)  made,  reg- 
istered, and  accepted  by  the  person  to  whom  the  transfer 
is  made  in  a  book  or  books  kept  for  that  purpose;  and, 
(6)  the  person  making  the  assignment  or  transfer  has,  if 
required  by  the  bank,  previously  discharged  all  his  debts 
or  liabilities  to  the  bank  which  exceed  in  amount  the  re- 
maining stock,  if  any,  belonging  to  such  person,  valued  at 
the  then  current  rate. 

2.  No  fractional  part  of  a  share,  or  less  than  a  whole 
share,  shall  be  assignable  or  transferable.      (53  V.,  c.  31, 

s.  35-) 

44.  A  list  of  all  transfers  of  shares  registered  each  day 
in  the  books  of  the  bank,  showing,  in  each  case,  the  parties 
to  such  transfers  and  the  number  of  shares  transferred, 
shall  be  made  up  at  the  end  of  each  day. 

2.  Such  lists  shall  be  kept  at  the  chief  place  of  business 
of  the  bank,  for  the  inspection  of  its  shareholders.  (53 
v.,  c.  31,  s.  36.) 

45.  All  sales  or  transfers  of  shares,  and  all  contracts  and 
agreements  in  respect  thereof,  hereafter  made  or  purport- 
ing to  be  made,  shall  be  null  and  void,  unless  the  person 
making  the  sale  or  transfer,  or  the  person  in  whose  name 
or  behalf  the  sale  or  transfer  is  made,  at  the  time  of  the 
sale  or  transfer  (a)  is  the  registered  owner  in  the  books  of 
the  bank  of  the  share  or  shares  so  sold  or  transferred,  or 
intended  or  purporting  to  be  so  sold  or  transferred;  or, 
{b)  has  the  registered  owner's  assent  to  the  sale. 

2.  The  distinguishing  number  or  numbers,  if  any,  of 
such  share  or  shares  shall  be  designated  in  the  contract  of 
agreement  of  sale  or  transfer. 


National     Monetary     Commission 

3.  Notwithstanding  anything  in  this  section  contained, 
the  rights  and  remedies  under  any  contract  of  sale,  which 
does  not  comply  with  the  conditions  and  requirements  in 
this  section  mentioned,  of  any  purchaser  who  has  no 
knowledge  of  such  non-compliance,  are  hereby  saved. 
(53  v.,  c.  31,  s.  37.) 

46.  When  any  share  of  the  capital  stock  has  been  sold 
under  a  writ  of  execution,  the  officer  by  whom  the  writ 
was  executed  shall,  within  thirty  days  after  the  sale,  leave 
with  the  bank  an  attested  copy  of  the  writ,  with  the  cer- 
tificate of  such  officer  endorsed  thereon,  certifying  to 
whom  the  sale  has  been  made. 

2.  The  president,  vice-president,  manager,  or  cashier  of 
the  bank  shall  execute  the  transfer  of  the  share  so  sold  to 
the  purchaser,  but  not  until  after  all  debts  and  liabilities 
to  the  bank  of  the  holder  of  the  share,  and  all  liens  in 
favour  of  the  bank  existing  thereon,  have  been  discharged 
as  by  this  act  provided. 

3.  Such  transfer  shall  be  to  all  intents  and  purposes  as 
valid  and  effectual  in  law  as  if  it  had  been  executed  by 
the  holder  of  the  said  share.      (53  V.,  c.  31,  s.  38.) 

47.  If  the  interest  in  any  share  in  the  capital  stock  of 
any  bank  is  transmitted  by  or  in  consequence  of  (a)  the 
death,  bankruptcy,  or  insolvency  of  any  shareholder;  or, 
(6)  the  marriage  of  a  female  shareholder;  or,  (c)  any  law- 
ful means,  other  than  a  transfer  according  to  the  provi- 
sions of  this  act;  the  transmission  shall  be . authenticated 
by  a  declaration  in  writing,  as  hereinafter  mentioned,  or 
in  such  other  manner  as  the  directors  of  the  bank  require. 

2.  Every  such  declaration  shall  distinctly  state  the 
manner  in  which  and  the  person  to  whom  the  share  has 
been  transmitted,  and  shall  be  made  and  signed  by  such 
person. 

3.  The  person  making  and  signing  the  declaration  shall 
acknowledge  the  same  before  a  judge  of  a  court  of  record, 
or  before  the  mayor,  provost  or  chief  magistrate  of  a  city, 


History    of    Banking    in     Canada 

town,  borough,  or  other  place,  or  before  a  notary  pubHc, 
where  the  same  is  made  and  signed. 

4.  Every  declaration  so  signed  and  acknowledged  shall 
be  left  with  the  cashier,  manager,  or  other  officer  or  agent 
of  the  bank,  who  shall  thereupon  enter  the  name  of  the 
person  entitled  under  the  transmission  in  the  register  of 
shareholders. 

5.  Until  the  transmission  has  been  so  authenticated,  no 
person  claiming  by  virtue  thereof  shall  be  entitled  to  par- 
ticipate in  the  profits  of  the  bank,  or  to  vote  in  respect  of 
any  such  share  of  the  capital  stock.      (53  V.,  c.  31,  s.  39.) 

48.  If  the  transmission  of  any  share  of  the  capital 
stock  has  taken  place  by  virtue  of  the  marriage  of  a  female 
shareholder,  the  declaration  shall  be  accompanied  by  a 
copy  of  the  register  of  such  marriage,  or  other  particulars 
of  the  celebration  thereof,  and  shall  declare  the  identity 
of  the  wife  with  the  holder  of  such  share,  and  shall  be 
made  and  signed  by  such  female  shareholder  and  her 
husband. 

2 .  The  declaration  may  include  a  statement  to  the  effect 
that  the  share  transmitted  is  the  separate  property  and 
under  the  sole  control  of  the  wife,  and  that  she  may, 
without  requiring  the  consent  or  authority  of  her  husband, 
receive  and  grant  receipts  for  the  dividends  and  profits 
accruing  in  respect  thereof,  and  dispose  of  and  transfer  the 
share  itself. 

3.  The  declaration  shall  be  binding  upon  the  bank  and 
persons  making  the  same,  until  the  said  persons  see  fit  to 
revoke  it  by  a  written  notice  to  the  bank  to  that  effect. 

4.  The  omission  of  a  statement  in  any  such  declaration 
that  the  wife  making  the  declaration  is  duly  authorized  by 
her  husband  to  make  the  same  shall  not  invalidate  the 
declaration.     (53  V.,  c.  31,  s.  40.) 

49.  Every  such  declaration  and  instrument  as  are  by 
the  last  two  preceding  sections  required  to  perfect  the 
transmission  of  a  share  in  the  bank  shall,  if  made  in  any 

229 


Nation  a  I    M  on  et  ar  y     Commission 

country  other  than  Canada,  the  United  Kingdom,  or  a 
British  colony  (a)  be  further  authenticated  by  the  clerk  of  a 
court  of  record  under  the  seal  of  the  court,  or  by  the  British 
consul  or  vice-consul,  or  other  accredited  representative 
of  His  Majesty's  Government  in  the  country  where  the 
declaration  or  instrument  is  made ;  or  (6)  be  made  directly 
before  such  British  consul,  vice-consul,  or  other  accredited 
representative. 

2.  The  directors,  cashier,  or  other  officer  or  agent  of  the 
bank  may  require  corroborative  evidence  of  any  fact 
alleged  in  any  such  declaration.      (53  V.,  c.  31,  s.  39.) 

50.  If  the  transmission  has  taken  place  by  virtue  of  any 
testamentary  instrument,  or  by  intestacy,  the  probate  of 
the  will,  or  the  letters  of  administration,  or  act  of  curator- 
ship  or  tutorship,  or  an  official  extract  therefrom,  shall, 
together  with  the  declaration,  be  produced  and  left  with 
the  cashier  or  other  officer  or  agent  of  the  bank. 

2.  The  cashier  or  other  officer  or  agent  shall  thereupon 
enter  in  the  register  of  shareholders  the  name  of  the  person 
entitled  under  the  transmission.      (53  V.,  c.  31,  s.  41.) 

51.  If  the  transmission  of  any  share  of  the  capital  stock 
has  taken  place  by  virtue  of  the  decease  of  any  share- 
holder, the  production  to  the  directors  and  the  deposit 
with  them  of  (a)  any  authenticated  copy  of  the  probate  of 
the  will  of  the  deceased  shareholder,  or  of  letters  of  admin- 
stration  of  his  estate,  or  of  letters  of  verification  of  heir- 
ship, or  of  the  act  of  curatorship  or  tutorship,  granted  by 
any  court  in  Canada  having  power  to  grant  the  same,  or  by 
any  court  or  authority  in  England,  Wales,  Ireland,  or  any 
British  colony,  or  of  any  testament,  testamentary  or  testa- 
ment dative  expede  in  Scotland;  or  (6)  an  authentic 
notarial  copy  of  the  will  of  the  deceased  shareholder,  if 
such  will  is  in  notarial  form  according  to  the  law  of  the 
province  of  Quebec;  or  (c)  if  the  deceased  shareholder 
died  out  of  His  Majesty's  dominions,  any  authenticated 
cop}'  of  the  probate  of  his  will  or  letters  of  administration 

230 


History     of    Banking     in     Canada 

of  his  property,  or  other  document  of  hke  import,  granted 
by  any  court  or  authority  having  the  requisite  power  in 
such  matters;  shall  be  suflicient  justification  and  authority 
to  the  directors  for  paying  any  dividend,  or  for  transferring 
or  authorizing  the  transfer  of  any  share,  in  pursuance  of 
and  in  conformity  to  the  probate,  letters  of  administration, 
or  other  such  document  as  aforesaid.      (53  V.,  c.  31,  s.  42.) 

SHARES    SUBJECT   TO   TRUSTS. 

52.  The  bank  shall  not  be  bound  to  see  to  the  execution 
of  any  trust,  whether  expressed,  implied,  or  constructive, 
to  which  any  share  of  its  stock  is  subject. 

2.  The  receipt  of  the  person  in  w^hose  name  any  such 
share  stands  in  the  books  of  the  bank,  or,  if  it  stands  in 
the  names  of  more  persons  than  one,  the  receipt  of  one  of 
such  persons,  shall  be  a  sufficient  discharge  to  the  bank 
for  any  dividend  or  any  other  sum  of  money  payable  in 
respect  of  such  share,  unless,  previously  to  such  payment, 
express  notice  to  the  contrary  has  been  given  to  the  bank . 

3 .  The  bank  shall  not  be  bound  to  see  to  the  application 
of  the  money  paid  upon  such  receipt,  whether  given  by  one 
of  such  persons  or  all  of  them.     (53  V.,  c.  31,  s.  43.) 

53.  No  person  holding  stock  in  the  bank  as  executor, 
administrator,  guardian,  trustee,  tutor,  or  curator  of  or  for 
any  estate,  trust,  or  person  named  in  the  books  of  the  bank 
as  being  so  represented  by  him,  shall  be  personally  subject 
to  any  liability  as  a  shareholder ;  but  the  estate  and  funds 
in  his  hands  shall  be  liable  in  like  manner  and  to  the  same 
extent  as  the  testator,  intestate,  ward,  or  person  interested 
in  such  estate  and  funds  would  be,  if  living  and  competent 
to  hold  the  stock  in  his  own  name. 

2.  If  the  trust  is  for  a  living  person,  such  person  shall 
also  himself  be  liable  as  a  shareholder. 

3.  If  the  estate,  trust,  or  person  so  represented  is  not  so 
named  in  the  books  of  the  bank,  the  executor,  administra- 


231 


National     Monetary     Commission 

tor,  guardian,  trustee,  tutor,  or  curator  shall  be  personally 
liable  in  respect  of  the  stock  as  if  he  held  it  in  his  own 
name  as  owner  thereof.     (63-64  V.,  c.  26,  s.  8.) 

ANNUAL    STATEMENT    AND    INSPECTION. 

54.  At  every  annual  meeting  of  the  shareholders  for  the 
election  of  directors,  the  outgoing  directors  shall  submit  a 
clear  and  full  statement  of  the  affairs  of  the  bank,  exhibit- 
ing, on  the  one  hand,  the  Habilities  of  or  the  debts  due  by 
the  bank,  and,  on  the  other  hand,  the  assets  and  resources 
thereof. 

2.  The  statement  shall  show,  on  the  one  part,  (a)  the 
amount  of  the  capital  stock  paid  in ;  (6)  the  amount  of  the 
notes  of  the  bank  in  circulation ;  (c)  the  net  profits  made ; 
{d)  the  balances  due  to  other  banks ;  and  (e)  the  cash  de- 
posited in  the  bank,  distinguishing  deposits  bearing  inter- 
est from  those  not  bearing  interest. 

3.  The  statement  shall  show,  on  the  other  part,  (a)  the 
amount  of  the  current  coin,  the  gold  and  silver  bullion,  and 
the  dominion  notes  held  by  the  bank ;  (6)  the  balances  due 
to  the  bank  from  other  banks;  (c)  the  value  of  the  real 
and  other  property  of  the  bank;  and  {d)  the  amount  of 
debts  owing  to  the  bank,  including  and' particularizing  the 
amounts  so  owing  upon  bills  of  exchange,  discounted  notes, 
mortgages,  and  other  securities. 

4.  The  statement  shall  also  exhibit  (a)  the  rate  and 
amount  of  the  last  dividend  declared  by  the  directors ;  {h) 
the  amount  of  reserved  profits  at  the  date  of  such  state- 
ment; and  (c)  the  amount  of  debts  due  to  the  bank,  over- 
due and  not  paid,  with  an  estimate  of  the  loss  which  will 
probably  accrue  thereon.     (53  V.,  c.  31,  s.  45.) 

55.  The  directors  shall  also  submit  to  the  shareholders 
such  further  statements  of  the  affairs  of  the  bank  other 
than  statements  with  reference  to  the  account  of  any  per- 
son dealing  with  the   bank  as  the  shareholders  require  by 


232 


History    of    Banking    in     Canada 

by-law  passed  at  the  annual  general  meeting  or  at  any 
special  general  meeting  of  the  shareholders  called  for  the 
purpose. 

2.  The  statements  so  required  shall  be  submitted  at  the 
annual  general  meeting,  or  at  any  special  general  meeting 
called  for  the  purpose,  or  at  such  time  and  in  such  manner 
as  is  set  forth  in  the  by-law  of  the  shareholders  requiring 
such  statements.     (63-64  V.,  c.  26,  s.  9.) 

56.  The  books,  correspondence,  and  funds  of  the 
bank  shall,  at  all  times,  be  subject  to  the  inspection  of 
the  directors. 

2.  No  person  who  is  not  a  director  shall  be  allowed  to 
inspect  the  account  of  any  person  dealing  with  the  bank. 
(53  v.,  c.  31,  s.  46.) 

DIVIDENDS. 

57.  The  directors  of  the  bank  shall,  subject  to  the  pro- 
visions of  this  act,  declare  quarterly  or  half-yearly  divi- 
dends of  so  much  of  the  profits  of  the  bank  as  to  the  ma- 
jority of  them  seems  advisable. 

2.  The  directors  shall  give  at  least  thirty  days'  public 
notice  of  the  payment  of  such  dividends  previously  to  the 
date  fixed  for  such  payment. 

3.  The  directors  may  close  the  transfer  books  dtu^ing  a 
certain  time,  not  exceeding  fifteen  days,  before  the  pay- 
ment of  each  dvidend.     (53  V.,  c.  31,  s.  47.) 

58.  No  dividend  or  bonus  shall  ever  be  declared  so  as  to 
impair  the  paid-up  capital  of  the  bank. 

2.  The  directors  who  knowingly  and  wilfully  concur  in 
the  declaration  or  making  payable  of  any  dividend  or 
bonus  whereby  the  paid-up  capital  of  the  bank  is  im- 
paired shall  be  jointly  and  severally  liable  for  the  amount 
of  such  dividend  or  bonus  as  a  debt  due  by  them  to  the 
bank.     (53  V.,  c.  31,  s.  48.) 

59.  No  division  of  profits,  either  by  way  of  dividends  or 
bonus,  or  both  combined,  or  in  any  other  way,  exceeding 

233 


National     Monetary     Commission 

the  rate  of  eight  per  centum  per  annum.,  shall  be  made  by 
the  bank  unless  after  making  the  same  the  bank  has  a 
rest  or  reserve  fund  equal  to  at  least  thirty  per  cent  of  its 
paid-up  capital  after  deducting  all  bad  and  doubtful  debts. 
(53  v.,  c.  31,  s.  49.) 

CASH  RESERVES. 

60.  The  bank  shall  hold  not  less  than  forty  per  centum 
of  its  cash  reserves  in  dominion  notes. 

2.  The  minister  shall  make  such  arrangements  as  are 
necessary  for  ensuring  the  delivery  of  dominion  notes  to 
any  bank  in  exchange  for  an  equivalent  amount  of  specie 
at  the  several  offices  at  which  dominion  notes  are  redeem- 
able in  the  cities  of  Toronto,  Montreal,  Halifax,  St.  John, 
Winnipeg,  Victoria,  and  Charlottetown,  respectively. 

3.  Such  notes  shall  be  redeemable  at  the  office  for  re- 
demption of  dominion  notes  in  the  place  where  the  specie 
is  given  in  exchange.     (53  V.,  c.  31,  s.  50.) 

THE    ISSUE    AND    CIRCULATION    OF    NOTES. 

61.  The  bank  may  issue  and  reissue  notes  payable  to 
bearer  on  demand  and  intended  for  circulation:  Provided, 
That  {a)  the  bank  shall  not,  during  any  period  of  suspen- 
sion of  payment,  of  its  liabilities  issue  or  reissue  any  such 
notes;  and  {b)  if,  after- any  such  suspension,  the  bank 
resumes  business  without  the  consent  in  writing  of  the 
curator,  hereinafter  provided  for,  it  shall  not  issue  or 
reissue  any  of  such  notes  until  authorized  by  the  treasury 
board  so  to  do. 

2.  No  such  note  shall  be  for  a  sum  less  than  five  dollars 
or  for  any  sum  which  is  not  a  multiple  of  five  dollars. 

3.  The  total  amount  of  such  notes  in  circulation  at  any 
time  shall  not  exceed  the  amount  of  the  unimpaired 
paid-up  capital  of  the  bank. 

4.  Notwithstanding  anything  in  this  section  contained, 
the  total  amount  of  such  notes  of  the  Bank  of  British 

^34 


History    of    Banking    in     Canada 

North  America  in  circulation  at  any  time  shall  not  ex- 
ceed seventy-five  per  centum  of  the  unimpaired  paid-up 
capital  of  the  bank:  Provided,  That  (a)  the  bank  may 
issue  such  notes  in  excess  of  the  said  seventy-five  per 
centum  upon  depositing  with  the  minister,  in  respect  of 
the  excess,  in  cash  or  bonds  of  the  Dominion  of  Canada, 
an  amount  equal  to  the  excess;  and  the  cash  or  bonds  so 
deposited  shall,  in  the  event  of  the  suspension  of  the  bank, 
be  available  by  the  minister  for  the  redemption  of  the 
notes  issued  in  excess  as  aforesaid;  and  (6)  the  total 
amount  of  such  notes  of  the  bank  in  circulation  at  any 
time  shall  in  no  case  exceed  its  unimpaired  paid-up 
capital. 

5.  All  notes  heretofore  issued  or  reissued  by  any  bank 
and  now  in  circulation,  which  are  for  a  sum  less  than  five 
dollars  or  for  a  sum  which  is  not  a  multiple  of  five  dollars, 
shall  be  called  in  and  canceled  as  soon  as  practicable.  (53 
v.,  c.  31,  s.  51;  63-64  V.,c.  26,  s.  10.) 

62.  Notwithstanding  the  provisions  of  the  last  preced- 
ing section,  any  bank  may  issue  and  reissue,  at  any  office 
or  agency  of  the  bank  in  any  British  colony  or  possession 
other  than  Canada,  notes  of  the  bank  payable  to  bearer 
on  demand  and  intended  for  circulation  in  such  colony  or 
possession,  for  the  sum  of  one  pound  sterling  each,  or  for 
any  multiple  of  such  sum,  or  for  the  sum  of  five  dollars 
each,  or  for  any  multiple  of  such  sum,  of  the  dollars  in 
commercial  use  in  such  colony  or  possession,  if  the  issue 
or  reissue  of  such  notes  is  not  forbidden  by  the  laws  of 
such  colony  or  possession. 

2.  No  issue  of  notes  of  the  denomination  of  five  such 
dollars,  or  any  multiple  thereof,  shall  be  made  in  any  such 
British  colony  or  possession  unless  nor  until  the  governor 
in  council  on  the  report  of  the  treasury  board  determines 
the  rate  in  Canadian  currency  at  which  such  notes  shall 
be  circulated  as  forming  part  of  the  total  amount  of  the 


235 


National     Monetary     Commission 

notes  in  circulation  within  the  meaning  of  the  last  preced- 
ing section. 

3.  The  notes  so  issued  shall  be  redeemable  at  par  at 
any  office  or  agency  of  the  bank  in  the  colony  or  posses- 
sion in  which  they  are  issued  for  circulation  and  not  else- 
where, except  as  in  this  section  specially  provided;  and 
the  place  of  redemption  of  such  notes  shall  be  legibly 
printed  or  stamped  across  the  face  of  each  note  so  issued, 

4.  In  the  event  of  the  bank' ceasing  to  have  an  office  or 
agency  in  any  such  British  colony  or  possession,  all  notes 
issued  in  such  colony  or  possession  under  the  provisions 
of  this  section  shall  become  payable  and  redeemable  at 
the  rate  of  four  dollars  and  eighty-six  and  two-thirds 
cents  per  pound  sterling,  or,  in  the  case  of  the  issue  of 
notes  of  the  denomination  of  five  dollars  or  any  multiple 
thereof,  of  the  dollars  in  commercial  use  in  such  colony 
or  possession,  at  the  rate  established  by  the  governor  in 
council  as  required  by  this  section,  in  the  same  manner 
as  notes  of  the  bank  issued  in  Canada  are  payable  and 
redeemable. 

5.  The  amount  of  the  notes  at  any  time  in  circulation 
in  any  such  colony  or  possession,  issued  under  the  provi- 
sions of  this  section,  shall,  at  the  rate  mentioned  in  the 
last  preceding  subsection,  form  part  of  the  total  amount 
of  the  notes  in  circulation  within  the  meaning  of  the  last 
preceding  section,  and,  except  as  herein  otherwise  spe- 
cially provided,  shall  be  subject  to  all  the  provisions  of 
this  act. 

6.  No  notes  issued  for  circulation  in  a  British  colony  or 
possession  other  than  Canada  shall  be  reissued  in  Canada. 

7.  Nothing  in  this  section  contained  shall  be  construed 
to  authorize  any  bank  (a)  to  increase  the  total  amount  of 
its  notes  in  circulation  in  Canada  and  elsewhere  beyond 
the  Hmit  fixed  by  the  last  preceding  section,  or  (6)  to 
issue  or  reissue  in  Canada  notes  payable  to  bearer  on 
demand  and  intended  for  circulation  for  a  sum  less  than 

236 


History    of    Banking    in     Canada 

five  dollars  or  for  a  sum  which  is  not  a  multiple  of  five 
dollars.     (4  E.  VII.,  c.  3,  ss.  i,  2,  3,  and  4.) 

63.  The  bank  shall  not  pledge,  assign,  or  hypothecate  its 
notes ;  and  no  advance  or  loan  made  on  the  security  of  the 
notes  of  a  bank  shall  be  recoverable  from  the  bank  or  its 
assets.     (53  v.,  c.  31,  s.  52.) 

64.  The  moneys  heretofore  paid  to  and  now  deposited 
with  the  minister  by  the  banks  to  which  this  act  applies, 
constituting  the  fund  known  as  the  bank  circulation 
redemption  fund,  shall  continue  to  be  held  by  the  minister 
for  the  purposes  and  subject  to  the  provisions  in  this  sec- 
tion mentioned  and  contained. 

2.  The  minister  shall,  upon  the  issue  of  a  certificate  un- 
der this  act  authorizing  a  bank  to  issue  notes  and  com- 
mence the  business  of  banking,  retain,  out  of  any  moneys 
of  such  bank  then  in  his  possession,  the  sum  of  five  thou- 
sand dollars,  which  sum  shall  be  held  for  the  purposes  of 
this  section  until  the  annual  adjustment  hereinafter  pro- 
vided for  takes  place  in  the  year  then  next  following. 

3.  The  amount  at  the  credit  of  such  bank  shall,  at  such 
next  annual  adjustment,  be  adjusted  by  payment  to  or 
by  the  bank  of  such  sum  as  is  necessary  to  make  the 
amount  of  money  at  the  credit  of  the  bank  equal  to  five 
per  centum  of  the  average  amount  of  its  notes  in  circula- 
tion from  the  time  it  commenced  business  to  the  time  of 
such  adjustment,  and  such  sum  shall  thereafter  be  adjusted 
annually  as  hereinafter  provided. 

4.  The  amounts  heretofore  and  from  time  to  time  here- 
after paid,  to  be  retained  and  held  by  the  minister  as  by 
this  section  provided,  shall  continue  to  form  and  shall  form 
the  circulation  fund. 

5.  The  circulation  fund  shall  continue  to  be  held  as 
heretofore  for  the  sole  purpose  of  payment,  in  the  event  of 
the  suspension  by  a  bank  of  payment  in  specie  or  Dominion 
notes  of  any  of  its  liabilities  as  they  accrue,  of  the  notes 

S.  Doc.  332,  6i-2 16  237 


National     Monetary     Commission 

then  issued  or  reissued  by  such  bank,  intended  for  circu- 
lation, and  then  in  circulation,  and  interest  thereon. 

6.  The  circulation  fund  shall  bear  interest  at  the  rate  of 
three  per  centum  per  annum. 

7.  The  circulation  fund  shall  be  adjusted,  as  soon  as 
possible  after  the  thirtieth  day  of  June  in  each  year,  in 
such  a  way  as  to  make  the  amoiuit  at  the  credit  of  each 
bank  contributing  thereto,  unless  herein  otherwise  spe- 
cially provided,  equal  to  five  per  centum  of  the  average 
note  circulation  of  such  bank  during  the  then  last  preceding 
twelve  months. 

8.  The  average  note  circulation  of  a  bank  during  any 
period  shall  be  determined  from  the  average  of  the  amount 
of  its  notes  in  circulation,  as  shown  by  the  monthly  returns 
for  such  period  made  by  the  bank  to  the  minister;  and 
where,  in  any  return,  the  greatest  amount  of  notes  in  cir- 
culation at  any  time  during  the  month  is  given,  such 
amount  shall,  for  the  purposes  of  this  section,  be  taken 
to  be  the  amount  of  the  notes  of  the  bank  in  circulation 
during  the  month  to  which  such  return  relates. 

9.  The  minister  shall  with  respect  to  all  notes  paid  out 
of  the  circulation  fund  have  the  same  rights  as  any  other 
holder  of  the  notes  of  the  bank:  Provided,  That  all  such 
notes,  and  all  interest  thereon,  so  paid  by  the  minister, 
after  the  amount  at  the  credit  of  such  bank  in  the  circula- 
tion fund,  and  all  interest  due  or  accruing  due  thereon, 
has  been  exhausted,  shall  bear  interest,  at  the  rate  of 
three  per  centum  per  annum,  from  the  time  such  notes  and 
interest  are  paid  until  such  notes  and  interest  are  repaid 
to  the  minister  by  or  out  of  the  assets  of  such  bank.  (53 
v.,  c.  31,  s.  54;  63-64  v.,  c.  26,  s.  13.) 

65.  In  the  event  of  the  suspension  by  a  bank  of  pay- 
ment in  specie  or  Dominion  notes  of  any  of  its  liabilities  as 
they  accrue,  the  notes  of  the  bank,  issued  or  reissued, 
intended  for  circulation,  and  then  in  circulation,  shall 
bear  interest  at  the  rate  of  five  per  centum  per  annum, 

238 


History    of    Banking     in     Canada 

from  the  da>^  of  the  suspension  to  such  day  as  is  named 
by  the  directors,  or  by  the  Hquidator,  receiver,  assignee,  or 
other  proper  official,  for  the  payment  thereof. 

2.  Notice  of  such  day  shall  be  given  by  advertising  for 
at  least  three  days  in  a  newspaper  published  in  the  place 
in  which  the  head  office  of  the  bank  is  situate. 

3.  If  any  notes  presented  for  payment  on  or  after  any 
day  named  for  payment  thereof  are  not  paid,  all  notes 
then  unpaid  and  in  circulation  shall  continue  to  bear 
interest  until  such  further  day  as  is  named  for  payment 
thereof,  of  which  day  notice  shall  be  given  in  manner 
hereinbefore  provided. 

4.  If  the  directors  of  the  bank  or  the  liquidator,  receiver, 
assignee,  or  other  proper  official  fails  to  make  arrangements, 
within  two  months  from  the  day  of  the  suspension  of  pay- 
ment by  the  bank,  for  the  payment  of  all  of  its  notes  and 
interest  thereon,  theminister  may  make  arrangements  for 
the  payment,  out  of  the  circulation  fund,  of  the  notes 
remaining  unpaid  and  all  interest  thereon,  and  the  min- 
ister shall  give  such  notice  of  the  payment  as  he  thinks 
expedient. 

5 .  Nothwithstanding  anything  herein  contained  all  inter- 
est upon  such  notes  shall  cease  upon  and  from  the  date 
named  by  the  minister  for  such  payment. 

6.  Nothing  herein  contained  shall  be  construed  to  im- 
pose any  liability  upon  the  government  of  Canada,  or  upon 
the  minister,  beyond  the  amount  available  from  time  to 
time  out  of  the  circulation  fund.  (53  V.,  c.  31,  s.  54;  63-64 
v.,  c.  26,  s.  II.) 

66.  All  payments  made  from  the  circulation  fund  shall 
be  without  regard  to  the  amount  contributed  thereto  by 
the  bank  in  respect  of  whose  notes  the  payments  are  made. 

2.  If  the  payments  from  the  circulation  fund  exceed  the 
amount  contributed  to  the  circulation  fund  by  the  bank 
so  suspending  payment,  and  all  interest  due  or  accruing 
due  to  such  bank  thereon,  the  other  banks  to  which  this 

239 


National     M  o  n  et  ar  y     Commission 

act  applies  shall,  on  demand,  made  good  to  the  circulation 
fund  the  amount  of  the  excess,  proportionately  to  the 
amount  which  each  such  other  bank  had  or  should  have 
contributed  to  the  circulation  fund,  at  the  time  of  the 
suspension  of  the  bank  in  respect  of  whose  notes  the  pay- 
ments are  made:  Provided,  That  (a)  each  of  such  other 
banks  shall  only  be  called  upon  to  make  good  to  the  cir- 
culation fund  its  share  of  the  excess  in  payments  not  ex- 
ceeding, in  any  one  year,  one  per  centum  of  the  average 
amount  of  its  notes  in  circulation;  (6)  such  circulation 
shall  be  ascertained  in  such  manner  as  the  minister 
decides;  and  (c)  the  minister's  decision  shall  be  final. 

3.  A'll  amounts  recovered  and  received  by  the  minister 
from  the  bank  on  account  of  which  such  payments  were 
made  shall,  after  the  amount  of  such  excess  has  been  made 
good  as  aforesaid,  be  distributed  among  the  banks  con- 
tributing to  make  good  such  excess,  proportionately  to 
the  amount  contributed  by  each.  (53  V.,  c.  31,  s.  54; 
63-64  v.,  c.  26,  s.  12.) 

67.  In  the  event  of  the  winding  up  of  the  business  of  a 
bank  by  reason  of  insolvency  or  otherwise,  the  treasury 
board  may,  on  the  application  of  the  directors,  or  of  the 
liquidator,  receiver,  assignee,  or  other  proper  official,  and 
on  being  satisfied  that  proper  arrangements  have  been  made 
for  the  payment  of  the  notes  of  the  bank  and  any  interest 
thereon,  pay  over  to  the  directors,  liquidator,  receiver, 
assignee,  or  other  proper  official,  the  amount  of  the  circula- 
tion fund  at  the  credit  of  the  bank,  or  such  portion  thereof 
as  it  thinks  expedient.     (53  V.,  c.  31,  s.  54.) 

68.  The  treasury  board  may  make  all  such  rules  and 
regulations  as  it  thinks  expedient  with  reference  to  (a)  the 
payment  of  any  moneys  out  of  the  circulation  fund,  and 
the  manner,  place,  and  time  of  such  payments;  (b)  the 
collection  of  all  amounts  due  to  the  circulation  fund; 
(c)  all  accounts  to  be  kept  in  connection  therewith;  and 


240 


History     of    Banking    in    Canada 

(d)  generally  the  management  of  the  circulation  fund  and 
all  matters  relating  thereto.      (53  V.,  c.  31,  s.  54.) 

69.  The  minister  may,  in  his  official  name,  by  action 
in  the  exchequer  court  of  Canada,  enforce  payment, 
with  cost  of  action,  of  any  sum  due  and  payable  by  any 
bank  which  should  form  part  of  the  circulation  fund. 
(53  v.,  c.  31,  s.  54.) 

70.  The  bank  shall  make  such  arrangements  as  are  neces- 
sary to  insure  the  circulation  at  par,  in  any  and  every  part 
of  Canada,  of  all  notes  issued  or  reissued  by  it  and  intended 
for  circulation;  and  towards  this  purpose  the  bank  shall 
establish  agencies  for  the  redemption  and  payment  of  its 
notes  at  the  cities  of  Toronto,  Montreal,  Halifax,  St.  John, 
Winnipeg,  Victoria,  and  Charlottetown,  and  at  such  other 
places  as  are  from  time  to  time  designated  by  the  treasury 
board.      (53  V.,  c.  31,  s.  55.) 

71.  The  bank  shall  always  receive  in  payment  its  own 
notes  at  par  at  any  of  its  offices,  and  whether  they  are 
made  payable  there  or  not. 

2.  The  chief  place  of  business  of  the  bank  shall  always 
be  one  of  the  places  at  which  its  notes  are  made  payable. 
(53  v.,  c.  31,  s.  56.) 

72.  The  bank,  when  making  any  payment,  shall,  on  the 
request  of  the  person  to  whom  the  payment  is  to  be  made, 
pay  the  same,  or  such  part  thereof,  not  exceeding  one  hun- 
dred dollars,  as  such  person  requests,  in  Dominion  notes 
for  one,  two,  or  four  dollars  each,  at  the  option  of  such 
person. 

2.  No  payment,  whether  in  Dominion  notes  or  bank 
notes,  shall  be  made  in  bills  that  are  torn  or  partially 
defaced  by  excessive  handling.     (53  V.,  c.  31,  s.  57.) 

73.  The  bonds,  obligations,  and  bills,  obligatory  or  of 
credit,  of  the  bank  under  its  corporate  seal,  signed  by  the 
president  or  vice-president,  and  countersigned  by  a  cashier 
or  assistant  cashier,  which  are  made  payable  to  any  per- 
son, shall  be  assignable  by  indorsement  thereon. 

241 


National     Monetary     Commission 

2.  The  bills  or  notes  of  the  bank  signed  by  the  president, 
vice-president,  cashier,  or  other  officer  appointed  by  the 
directors  of  the  bank  to  sign  the  same,  promising  the  pay- 
ment of  money  to  any  person,  or  to  his  order,  or  to  the 
bearer,  though  not  under  the  corporate  seal  of  the  bank, 
shall  be  binding  and  obligatory  on  the  bank,  in  like  manner 
and  with  the  like  force  and  effect  as  they  would  be  upon 
any  private  person,  if  issued  by  him  in  his  private  or  nat- 
ural capacity,  and  shall  be  assignable  in  like  manner  as  if 
they  were  so  issued  by  a  private  person  in  his  natural 
capacity. 

3.  The  directors  of  the  bank  may,  from  time  to  time, 
authorize  or  depute  any  cashier,  assistant  cashier,  or  officer 
of  the  bank,  or  any  director  other  than  the  president  or 
vice-president,  or  any  cashier,  manager,  or  local  director 
of  any  branch  or  office  of  discount  and  deposit  of  the  bank, 
to  sign  the  notes  of  the  bank  intended  for  circulation. 
(53  v.,  c.  31,  s.  58.) 

74.  All  bank  notes  and  bills  whereon  the  name  of  any 
person  intrusted  or  authorized  to  sign  such  notes  or  bills 
on  behalf  of  the  bank  is  impressed  by  machinery  provided 
for  that  purpose,  by  or  with  the  authority  of  the  bank, 
shall  be  good  and  valid  to  all  intents  and  purposes,  as  if 
such  notes  and  bills  had  been  subscribed  in  the  proper 
handwriting  of  the  person  intrusted  or  authorized  by  the 
bank  to  sign  the  same  respectively,  and  shall  be  bank  notes 
and  bills  within  the  meaning  of  all  laws  and  statutes  what- 
ever, and  may  be  described  as  bank  notes  or  bills  in  all 
indictments  and  civil  or  criminal  proceedings  whatever: 
Provided,  That  at  least  one  signature  to  each  note  or  bill 
must  be  in  the  actual  handwriting  of  a  person  authorized 
to  sign  such  note  or  bill.      (53  V.,  c.  31,  s.  59.) 

75.  Every  officer  charged  with  the  receipt  or  disburse- 
ment of  public  moneys,  and  every  officer  of  any  bank,  and 
every  person  acting  as  or  employed  by  any  banker,  shall 


242 


History     of    Banking    in     Canada 

stamp  or  write  in  plain  letters,  upon  every  counterfeit  or 
fraudulent  note  issued  in  the  form  of  a  Dominion  or  bank 
note,  and  intended  to  circulate  as  money,  which  is  pre- 
sented to  him  at  his  place  of  business,  the  word,  "Coun- 
terfeit," "Altered,"  or  "Worthless." 

2.  If  such  officer  or  person  wrongfully  stamps  any  gen- 
uine note  he  shall,  upon  presentation,  redeem  it  at  the  face 
value  thereof.     (53  V.,  c.  31,  s.  62.) 

THE    BUSINESS    AND    POWERS    OF    A    BANK. 

76.  The  bank  may  (a)  open  branches,  agencies  and  offices ; 
(6)  engage  in  and  carry  on  business  as  a  dealer  in  gold 
and  silver  coin  and  bullion;  (c)  deal  in,  discount  and  lend 
money  and  make  advances  upon  the  security  of,  and  take 
as  collateral  security  for  any  loan  made  by  it,  bills  of  ex- 
change, promissory  notes,  and  other  negotiable  securities, 
or  the  stock,  bonds,  debentures,  and  obligations  of  munici- 
pal and  other  corporations,  whether  secured  by  mortgage 
or  otherwise,  or  Dominion,  provincial,  British,  foreign  and 
other  public  securities;  and,  {d)  engage  in  and  carry  on 
such  business  generally  as  appertains  to  the  business  of 
banking. 

2.  Except  as  authorized  by  this  act,  the  bank  shall  not, 
either  directly  or  indirectly,  (a)  deal  in  the  buying  or  sell- 
ing, or  bartering  of  goods,  wares,  and  merchandise,  or 
engage  or  be  engaged  in  any  trade  or  business  whatsoever; 
(5)  purchase,  or  deal  in,  or  lend  money,  or  make  advances 
upon  the  security  or  pledge  of  any  share  of  its  own  capital 
stock,  or  of  the  capital  stock  of  any  bank;  or,  (c)  lend 
money  or  make  advances  upon  the  security,  mortgage  or 
hypothecation  of  any  lands,  tenements,  or  immovable 
property,  or  of  any  ships  or  other  vessels,  or  upon  the 
security  of  any  goods,  wares,  and  merchandise.  (53  V., 
c.  31,  s.  64.) 


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National     Monetary     Commission 

jj.  The  bank  shall  have  a  privileged  lien,  for  any  debt 
or  liability  for  any  debt  to  the  bank,  on  the  shares  of  its 
own  capital  stock,  and  on  any  unpaid  dividends  of  the 
debtor  or  person  liable,  and  may  decline  to  allow  any  trans- 
fer of  the  shares  of  such  debtor  or  person  until  the  debt 
is  paid. 

2.  The  bank  shall,  within  twelve  months  after  the  debt 
has  accrued  and  become  payable,  sell  such  shares:  Pro- 
vided, That  notice  shall  be  given  to  the  holder  of  the  shares 
of  the  intention  of  the  bank  to  sell  the  same,  by  mailing 
the  notice,  in  the  post  office,  post  paid,  to  the  last  known 
address  of  the  holder,  at  least  thirty  days  prior  to  the  sale. 

3.  Upon  the  sale  being  made  the  president,  vice-presi- 
dent, manager  or  cashier  shall  execute  a  transfer  of  the 
shares  to  the  purchaser  thereof  in  the  usual  transfer  book 
of  the  bank. 

4.  Such  transfers  shall  vest  in  the  purchaser  all  the  rights 
in  or  to  the  said  shares  which  were  possessed  by  the  holder 
thereof,  with  the  same  obligation  of  warranty  on  .his  part 
as  if  he  were  the  vendor  thereof,  but  without  any  warranty 
from  the  bank  or  by  the  officer  of  the  bank  executing  the 
transfer.      (53  V.,  c.  31,  s.  65.) 

78.  The  stock,  bonds,  debentures  or  securities,  acquired 
and  held  by  the  bank  as  collateral  security,  may,  in  case 
of  default  in  the  payment  of  the  debt,  for  the  securing  of 
which  they  were  so  acquired  and  held,  be  dealt  with,  sold 
and  conveyed,  either  in  like  manner  and  subject  to  the 
same  restrictions  as  are  herein  provided  in  respect  of  stock 
of  the  bank  on  which  it  has  acquired  a  lien  under  this  act, 
or  in  like  manner  as  and  subject  to  the  restrictions  under 
which  a  private  individual  might  in  like  circumstances 
deal  with,  sell  and  convey  the  same:  Provided,  That  the 
bank  shall  not  be  obliged  to  sell  within  twelve  months. 

2.  The  right  so  to  deal  with  and  dispose  of  such  stock, 
bonds,  debentures  or  securities  in  manner  aforesaid  may 
be  waived  or  varied  by  any  agreement  between  the  bank 

244 


History    of    Banking    in     Canada 

and  the  owner  of  the  stock,  bonds,  debentures  or  securi- 
ties, made  at  the  time  at  which  such  debt  was  incurred, 
or,  if  the  time  of  payment  of  the  debt  has  been  extended, 
then  by  an  agreement  made  at  the  time  of  the  extension. 
(53  v.,  c.  31,  s.  66.) 

79.  The  bank  may  acquire  and  hold  real  and  immovable 
property  for  its  actual  use  and  occupation  and  the  manage 
ment  of  its  business,  and  may  sell  or  dispose  of  the  same 
and  acquire  other  property  in  its  stead  for  the  same  pur- 
pose.    (53  v.,  c.  31,  s.  67.) 

80.  The  bank  may  take,  hold  and  dispose  of  mortgages 
and  hypotheques  upon  real  or  personal,  immovable  or 
movable  property,  by  way  of  additional  security  for  debts 
contracted  to  the  bank  in  the  course  of  its  business. 

2.  The  rights,  powers,  and  privileges  which  the  bank  is 
by  this  act  declared  to  have,  or  to  have  had,  in  respect  of 
real  or  immovable  property  mortgaged  to  it,  shall  be  held 
and  possessed  by  it  in  respect  of  any  personal  or  movable 
property  which  is  mortgaged  or  hypothecated  to  the  bank. 
(53  V.,  c.  31,  s.  68.) 

81.  The  bank  may  purchase  any  lands  or  real  or  im- 
movable property  offered  for  sale  (a)  under  execution,  or 
in  insolvency,  or  under  the  order  or  decree  of  a  court,  as 
belonging  to  any  debtor  to  the  bank;  or  (6)  by  a  mort- 
gagee or  other  encumbrancer,  having  priority  over  a 
mortgage  or  other  encumbrance  held  by  the  bank;  or  (c) 
by  the  bank  under  a  power  of  sale  given  to  it  for  that 
purpose;  in  cases  in  which,  under  similar  circumstances,  an 
individual  could  so  purchase,  without  any  restriction  as 
to  the  value  of  the  property  which  it  may  so  purchase, 
and  may  acquire  a  title  thereto  as  any  individual,  purchas- 
ing at  sheriff's  sale,  or  under  a  power  of  sale,  in  like  cir- 
cumstances could  do,  and  may  take,  have,  hold,  and  dis- 
pose of  the  same  at  pleasure.      (53  V.,  c.  31,  s.  69.) 

82.  The  bank  may  acquire  and  hold  an  absolute  title  in 
or  to  real  or  immovable  property  mortgaged  to  it  as  secur- 

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National    Monetary     Commission 

ity  for  a  debt  due  or  owing  to  it,  either  by  the  obtaining 
of  a  release  of  the  equity  of  redemption  in  the  mortgaged 
property,  or  by  procuring  a  foreclosure,  or  by  other 
means  whereby,  as  between  individuals,  an  equity  of 
redemption  can,  by  law,  be  barred,  and  may  purchase 
and  acquire  any  prior  mortgage  or  charge  on  such  property. 

2.  Nothing  in  any  charter,  act  or  law  shall  be  construed 
as  ever  having  been  intended  to  prevent  or  as  preventing 
the  bank  from  acquiring  and  holding  an  absolute  title  to 
and  in  any  such  mortgaged  real  or  immovable  property, 
whatever  the  value  thereof,  or  from  exercising  or  acting 
upon  any  power  of  sale  contained  in  any  mortgage  given 
to  or  held  by  the  bank,  authorizing  or  enabling  it  to  sell 
or  convey  away  any  property  so  mortgaged.  (53  V.,  c.  31, 
s.  71 ;  63-64  v.,  c.  26,  s.  14.) 

83.  No  bank  shall  hold  any  real  or  immovable  property, 
howsoever  acquired,  except  such  as  is  required  for  its 
own  use,  for  any  period  exceeding  seven  years  from  the 
date  of  the  acquisition  thereof,  or  any  extension  of  such 
period  as  in  this  secton  provided,  and  such  property 
shall  be  absolutely  sold  or  disposed  of,  within  such  period 
or  extended  period,  as  the  case  may  be,  so  that  the  bank 
shall  no  longer  retain  any  interest  therein  unless  by  way 
of  security. 

2.  The  treasury  board  may  direct  that  the  time  for  the 
sale  or  disposal  of  any  such  real  or  immovable  property 
shall  be  extended  for  a  further  period  or  periods,  not  to 
exceed  five  years. 

3.  The  whole  period  during  which  the  bank  may  so 
hold  such  property  under  the  foregoing  provisions  of  this 
section  shall  not  exceed  twelve  years  from  the  date  of 
the  acquisition  thereof. 

4.  Any  real  or  immovable  property,  not  required  by 
the  bank  for  its  own  use,  held  by  the  bank  for  a  longer 
period  than  authorized  by  the  foregoing  provisions  of 
this  section  shall  be  liable  to  be  forfeited  to  His  Majesty 

246 


History     of    B an  ki-n g    in     Canada 

for  the  use  of  the  Dominion  of  Canada:  Provided,  That 
(a)  no  such  forfeiture  shall  take  effect  until  the  expiration 
of  at  least  six  calendar  months  after  notice  in  writing  to 
the  bank  by  the  minister  of  the  intention  of  His  Majesty 
to  claim  the  forfeiture;  and,  (b)  the  bank  may,  notwith- 
standing such  notice,  before  the  forfeiture  is  effected 
sell  or  dispose  of  the  property  free  from  liability  to 
forfeiture. 

5.  The  provisions  of  this  section  shall  apply  to  any 
real  or  immovable  property  heretofore  acquired  by  the 
bank  and  held  by  it  at  the  time  of  the  coming  into  force 
of  this  act.     (63-64  v.,  c.  26,  s.  14.) 

84.  The  bank  may  lend  money  upon  the  security  of 
standing  timber,  and  the  rights  or  licenses  held  by  per- 
sons to  cut  or  remove  such  timber.     (63-64  V.,  c.  26,  s.  16.) 

85.  Every  bank  advancing  money  in  aid  of  the  building 
of  any  ship  or  vessel  shall  have  the  same  right  of  acquiring 
and  holding  security  upon  such  ship  or  vessel,  while 
building  and  when  completed,  either  by  way  of  mortgage, 
hypotheque,  hypothecation,  privilege  or  lien  thereon,,  or 
purchase  or  transfer  thereof,  as  individuals  have  in  the 
province  wherein  the  ship  or  vessel  is  being  built. 

2.  The  bank  may,  for  the  purpose  of  obtaining  and 
enforcing  such  security,  avail  itself  of  all  such  rights  and 
means,  and  shall  be  subject  to  all  such  obligations,  limi- 
tations, and  conditions,  as  are,  by  the  law  of  such  prov- 
ince, conferred  or  imposed  upon  individuals  making  such 
advances.     (53  V.,  c.  31,  s.  72.) 

86.  The  bank  may  acquire  and  hold  any  warehouse 
receipt  or  bill  of  lading  as  collateral  security  for  the  pay- 
ment of  any  debt  incurred  in  its  favour,  or  as  security 
for  any  liability  incurred  by  it  for  any  person,  in  the  course 
of  its  banking  business. 

2.  Any  warehouse  receipt  or  bill  of  lading  so  acquired 
shall  vest  in  the  bank,  from  the  date  of  the  acquisition 
thereof,  (a)    all  the  right    and   title    to  such  warehouse 

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National    M  o  n  e  t  ar  y     Commission 

receipt  or  bill  of  lading  and  to  the  goods  covered  thereby 
of  the  previous  holder  or  owner  thereof;  or,  {h)  all  the 
right  and  title  to  the  goods,  wares,  and  merchandise  men- 
tioned therein  of  the  person  from  whom  the  same  were 
received  or  acquired  by  the  bank,  if  the  warehouse  receipt 
or  bill  of  lading  is  made  directly  in  favour  of  the  bank, 
instead  of  to  the  previous  holder  or  owner  of  such  goods, 
wares  and  merchandise.  (53  V.,  c.  31,  s.  73;  63-64  V., 
c.  26,  s.  15.) 

87.  If  the  previous  holder  of  such  warehouse  receipt  or 
bill  of  lading  is  any  person,  (a)  entrusted  with  the  posses- 
sion of  the  goods,  wares  and  merchandise  mentioned 
therein,  by  or  by  the  authority  of  the  owner  thereof;  or, 
(6)  to  whom  such  goods,  wares  and  merchandise  are,  by 
or  by  the  authority  of  the  owner  thereof,  consigned ;  or,  (c) 
who,  by  or  by  the  authority  of  the  owner  of  such  goods, 
wares  and  merchandise,  is  possessed  of  any  bill  of  lading, 
receipt,  order  or  other  document  covering  the  same,  such 
as  is  used  in  the  course  of  business  as  proof  of  the  posses- 
sion or  control  of  goods,  wares  and  merchandise,  or  as 
authorizing  or  purporting  to  authorize,  either  by  endorse- 
ment or  by  delivery,  the  possessor  of  such  a  document  to 
transfer  or  receive  the  goods,  wares  and  merchandise 
thereby  represented;  the  bank  shall  be,  upon  the  acquisi- 
tion of  such  warehouse  receipt  or  bill  of  lading,  vested  with 
all  the  right  and  title  of  the  owner  of  such  goods,  wares  and 
merchandise,  subject  to  the  right  of  the  owner  to  have  the 
same  retransf erred  to  him  if  the  debt  or  liability,  as  security 
for  which  such  warehouse  receipt  or  bill  of  lading  is  held 
by  the  bank,  is  paid. 

2.  Any  person  shall  be  deemed  to  be  the  possessor  of 
such  goods,  wares  and  merchandise,  bill  of  lading,  receipt, 
order  or  other  document  as  aforesaid,  (a)  who  is  in  actual 
possession  thereof;  or,  (6)  for  whom,  or  subject  to  whose 
control,  the  same  are  held  by  any  person.  (53  V.,  c.  31, 
s.  73;  63-64  v.,  c.  26,  s.  15.) 

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History     of    Banking    in     Canada 

88.  The  bank  may  lend  money  to  any  wholesale  pur- 
chaser or  shipper  of  or  dealer  in  products  of  agriculture, 
the  forest,  quarry  and  mine,  or  the  sea,  lakes  and  rivers,  or 
to  any  wholesale  purchaser  or  shipper  of  or  dealer  in  live 
stock  or  dead  stock  and  the  products  thereof,  upon  the  se- 
curity of  such  products,  or  of  such  live  stock  or  dead  stock 
and  the  products  thereof. 

2.  The  bank  may  allow  the  goods,  wares  and  merchan- 
dise covered  by  such  security  to  be  removed  and  other 
goods,  wares  and  merchandise,  such  as  mentioned  in  the 
last  preceding  subsection,  to  be  substituted  therefor,  if  the 
goods,  wares  and  merchandise  so  substituted  are  of  sub- 
stantially the  same  character,  and  of  substantially  the 
same  value  as,  or  of  less  value  than,  those  for  which  they 
have  been  so  substituted;  and  the  goods,  wares  and  mer- 
chandise so  substituted  shall  be  covered  by  such  security 
as  if  originally  covered  thereby. 

3.  The  bank  may  lend  money  to  any  person  engaged  in 
business  as  a  wholesale  manufacturer  of  any  goods,  wares 
and  merchandise,  upon  the  security  of  the  goods,  wares 
and  merchandise  manufactured  by  him,  or  procured  for 
such  manufacture. 

4.  Any  such  security,  as  mentioned  in  the  foregoing  pro- 
visions of  this  section,  may  be  given  by  the  owner  of  said 
goods,  wares  and  merchandise,  stock  or  products. 

5.  The  security  may  be  taken  in  the  form  set  forth  in 
Schedule  C  to  this  act,  or  to  the  like  effect. 

6.  The  bank  shall,  by  virtue  of  such  security,  acquire 
the  same  rights  and  powers  in  respect  to  the  goods,  wares 
and  merchandise,  stock  or  products  covered  thereby,  as  if 
it  had  acquired  the  same  by  virtue  of  a  warehouse  receipt. 
(53  v.,  c.  31,  s.  74;  63-64  v.,  c.  26,  s.  17.) 

89.  If  goods,  wares  and  merchandise  are  manufactured 
or  produced  from  the  goods,  wares  and  merchandise,  or  any 
of  them,  included  in  or  covered  by  any  warehouse  receipt, 
or  included  in  or  covered  by  any  security  given  under  the 

249 


National     M  on  et  ar  y     Commission 

last  preceding  section,  while  so  covered,  the  bank  holding 
such  warehouse  receipt  or  security  shall  hold  or  continue  to 
hold  such  goods,  wares  and  merchandise,  during  the  proc- 
ess and  after  the  completion  of  such  manufacture  or  pro- 
duction, with  the  same  right  and  title,  and  for  the  same 
purposes  and  upon  the  same  conditions,  as  it  held  or  could 
have  held  the  original  goods,  wares  and  merchandise. 

2 .  All  advances  made  on  the  security  of  any  bill  of  lading 
or  warehouse  receipt,  or  of  any  security  given  under  the 
last  preceding  section,  shall  give  to  the  bank  making  the 
advances  a  claim  for  the  repayment  of  the  advances  on  the 
goods,  wares  and  merchandise  therein  mentioned,  or  into 
which  they  have  been  converted,  prior  to  and  by  prefer- 
ence over  the  claim  of  any  unpaid  vendor:  Provided,  That 
such  preference  shall  not  be  given  over  the  claim  of  any  un- 
paid vendor  who  had  a  lien  upon  the  goods,  wares  and  mer- 
chandise at  the  time  of  the  acquisition  by  the  bank  of  such 
warehouse  receipt,  bill  of  lading,  or  security,  unless  the 
same  was  acquired  without  knowledge  on  the  part  of  the 
bank  of  such  lien. 

3.  In  the  event  of  the  non-payment  at -maturity  of  any 
debt  or  liability  secured  by  a  warehouse  receipt  or  bill  of 
lading,  or  secured  by  any  security  given  under  the  last  pre- 
ceding section,  the  bank  may  sell  the  goods,  wares  and 
merchandise  mentioned  therein,  or  so  much  thereof  as  will 
suffice  to  pay  such  debt  or  liability  with  interest  and  ex- 
penses, returning  the  surplus,  if  any,  to  the  person  from 
whom  the  warehouse  receipt,  bill  of  lading,  or  security,  or 
the  goods,  wares  and  merchandise  mentioned  therein,  as 
the  case  may  be,  were  acquired:  Provided,  That  such  power 
of  sale  shall  be  exercised  subject  to  the  following  provisions, 
namely:  (a)  No  sale,  without  the  consent  in  writing  of  the 
owner  of  any  timber,  boards,  deals,  staves,  saw-logs  or 
other  lumber,  shall  be  made  under  this  act  until  notice  of 
the  time  and  place  o!  such  sale  has  been  given  by  a  regis- 


250 


History     of    Banking'    in     Canada 

tered  letter,  mailed  in  the  post  office,  post  paid,  to  the  last 
known  address  of  the  pledger  thereof,  at  least  thirty  days 
prior  to  the  sale  thereof;  (6)  no  goods,  wares  and  merchan- 
dise, other  than  timber,  boards,  deals,  staves,  saw-logs  or 
other  lumber,  shall  be  sold  by  the  bank  under  this  act  with- 
out the  consent  of  the  owner  until  notice  of  the  time  and 
place  of  sale  has  been  given  by  a  registered  letter,  mailed 
in  the  post-office,  post  paid,  to  the  last  known  address  of 
the  pledger  thereof,  at  least  ten  days  prior  to  the  sale  there- 
of; (c)  every  sale  under  such  power  of  sale  without  the 
consent  of  the  owner  shall  be  made  by  public  auction,  after 
notice  thereof  by  advertisement  in  at  least  two  newspapers 
published  in  or  nearest  to  the  place  where  the  sale  is  to  be 
made,  stating  the  time  and  place  thereof;  and,  if  the  sale 
is  in  the  province  of  Quebec,  then  at  least  one  of  such  news- 
papers shall  be  a  newspaper  published  in  the  English  lan- 
guage, and  one  other  such  newspaper  shall  be  a  newspaper 
published  in  the  French  language.  (53  V.,  c.  31,  ss.  76,  77 
and  78;  63-64  v.,  c.  26,  s.  19.) 

90.  The  bank  shall  not  acquire  or  hold  any  warehouse 
receipt  or  bill  of  lading,  or  any  such  security  as  aforesaid, 
to  secure  the  payment  of  any  bill,  note,  debt,  or  liability, 
unless  such  bill,  note,  debt,  or  liability  is  negotiated  or 
contracted  (a)  at  the  time  of  the  acquisition  thereof  by 
the  bank,  or  {h)  upon  the  written  promise  or  agreement 
that  such  warehouse  receipt  or  bill  of  lading  or  security 
would  be  given  to  the  bank:  Provided,  That  such  bill,  note, 
debt,  or  liability  may  be  renewed,  or  the  time  for  the  pay- 
ment thereof  extended,  without  affecting  any  such  security. 

2.  The  bank  may  (a)  on  shipment  of  any  goods,  wares 
and  merchandise  for  which  it  holds  a  warehouse  receipt, 
or  any  such  security  as  aforesaid,  surrender  such  receipt 
or  security  and  receive  a  bill  of  lading  in  exchange  there- 
for or  {b)  on  the  receipt  of  any  goods,  wares  and  mer- 
chandise for  which  it  holds  a  bill  of  lading,  or  any  such 
security  as  aforesaid,  surrender  such  bill  of  lading  or  secu- 

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National     Monetary     Commission 

rity,  store  ttfe  goods,  wares  and  merchandise,  and  take 
a  warehouse  receipt  therefor,  or  ship  the  goods,  wares  and 
merchandise,  or  part  of  them,  and  take  another  bill  of  lad- 
ing therefor.      (53  V.,  c.  31,  s.  75;  63-64  V.,  c.  26,  s.  18.) 

91.  The  bank  may  stipulate  for,  take,  reserve  or  exact 
any  rate  of  interest  or  discount,  not  exceeding  seven  per 
centum  per  annum,  and  may  receive  and  take  in  advance 
any  such  rate,  but  no  higher  rate  of  interest  shall  be  recov- 
erable by  the  bank.     (53  V.,  c.  31,  s.  80.) 

92.  The  bank  may  allow  any  rate  of  interest  whatever 
upon  money  deposited  with  it.      (53  V.,  c.  31,  s.  80.) 

93.  When  any  note,  bill,  or  other  negotiable  security  or 
paper,  payable  at  any  of  the  bank's  places  or  seats  of 
business,  branches,  agencies  or  offices  of  discount  and  de- 
posit in  Canada,  is  discounted  at  any  other  of  the  bank's 
places  or  seats  of  business,  branches,  agencies  or  offices  of 
discount  and  deposit,  the  bank  may,  in  order  to  defray 
the  expenses  attending  the  collection  thereof,  receive  or 
retain,  in  addition  to  the  discount  thereon,  a  percentage 
calculated  upon  the  amount  of  such  note,  bill,  or  other  ne- 
gotiable security  or  paper,  not  exceeding,  if  the  note,  bill, 
or  other  negotiable  security  or  paper  is  to  run  (a)  for  less 
than  thirty  days,  one-eighth  of  one  per  centum;  (6)  for 
thirty  days  or  over  but  less  than  sixty  days,  one-fourth  of 
one  per  centum;  (c)  for  sixty  days  or  over  but  less  than 
ninety  days,  three-eighths  of  one  per  centum;  and  {d)  for 
ninety  days  or  over,  one-half  of  one  per  centum.  (53  V., 
0.31,3.82.) 

94.  The  bank  may,  in  discounting  any  note,  bill,  or 
other  negotiable  security  or  paper,  bona  fide  payable 
at  any  place  in  Canada  other  than  that  at  which  it  is 
discounted,  and  other  than  one  of  its  own  places  or  seats 
of  business,  branches,  agencies,  or  offices  of  discount  and 
deposit  in  Canada,  receive  and  retain,  in  addition  to  the 
discount  thereon,  a  sum  not  exceeding  one-half  of  one 
per  centum  on  the  amount  thereof  to  defray  the  expenses 


History     of    Banking    in     Canada 

of  agency  and  charges  in  collecting  the  same.  (53  V.,  c. 
31,  s.  83.) 

95.  The  bank  may,  subject  to  the  provisions  of  this  sec- 
tion, without  the  authority,  aid,  assistance,  or  intervention 
of  any  other  person  or  official  being  required  (a)  receive 
deposits  from  any  person  whomsoever,  whatever  his  age, 
status,  or  condition  in  life,  and  whether  such  person  is 
qualified  by  law  to  enter  into  ordinary  contracts  or  not, 
and  (6)  from  time  to  time  repay  any  or  all  of  the  principal 
thereof,  and  pay  the  whole  or  any  part  of  the  interest 

•thereon  to  such  person,  unless  before  such  repayment  the 
money  so  deposited  in  the  bank  is  lawfully  claimed  as  the 
property  of  some  other  person. 

2.  In  the  case  of  any  such  lawful  claim  the  money  so 
deposited  may  be  paid  to  the  depositor  with  the  consent 
of  the  claimant,  or  to  the  claimant  with  the  consent  of 
the  depositor. 

3.  If  the  person  making  any  such  deposit  could  not, 
under  the  law  of  the  province  where  the  deposit  is  made, 
deposit  and  withdraw  money  in  and  from  a  bank  without 
this  section,  the  total  amount  to  be  received  from  such 
person  on  deposit  shall  not  at  any  time  exceed  the  sum  of 
five  hundred  dollars.     (53  V.,  c.  31,  s.  84.) 

96.  The  bank  shall  not  be  bound  to  see  to  the  execu- 
tion of  any  trust,  whether  expressed,  implied,  or  construc- 
tive, to  which  any  deposit  made  under  the  authority  of 
this  act  is  subject. 

2.  Except  only  in  the  case  of  a  lawful  claim,  by  some 
other  person  before  repayment,  the  receipt  of  the  person 
in  whose  name  any  such  deposit  stands,  or,  if  it  stands  in 
the  names  of  two  persons,  the  receipt  of  one,  or,  if  it  stands 
in  the  names  of  more  than  two  persons,  the  receipt  of  a 
majority  of  such  persons,  shall,  notwithstanding  any  trust 
to  which  such  deposit  is  then  subject,  and  whether  or 
not  the  bank  sought  to  be  charged  with  such  trust,  and 
with  which  the  deposit  has  been  made,  had  notice  thereof, 

S,  Doc.  332    61-2 17  253 


National    M o  n  et ar y     Commission 

be  a  sufficient  discharge  to  all  concerned  for  the  payment 
of  any  money  payable  in  respect  of  such  deposit. 

3.  The  bank  shall  not  be  bound  to  see  to  the  applica- 
tion of  the  money  paid  upon  such  receipt.  (53  V.,  c. 
31,  s.  84.) 

97.  If  a  person  dies,  having  a  deposit  with  the  bank  not 
exceeding  the  sum  of  five  hundred  dollars,  the  production 
to  the  bank  and  deposit  with  it  of  (a)  any  authenticated 
copy  of  the  probate  of  the  will  of  the  deceased  depositor, 
or  of  letters  of  administration  of  his  estate,  or  of  letters 
of  verification  of  heirship,  or  of  the  act  of  curatorship  or 
tutorship,  granted  by  any  court  in  Canada  having  power 
to  grant  the  same,  or  by  any  court  or  authority  in  England, 
Wales,  Ireland,  or  any  British  colony,  or  of  any  testament, 
testamentary  or  testament  dative  expede  in  Scotland;  or, 
(6)  an  authentic  notarial  copy  of  the  will  of  the  deceased 
depositor,  if  such  will  is  in  notarial  form,  according  to  the 
law  of  the  Province  of  Quebec;  or,  (c)  if  the  deceased 
depositor  died  out  of  His  Majesty's  dominions,  any  authen- 
ticated copy  of  the  probate  of  his  will,  or  letters  of  adminis- 
tration of  his  property,  or  other  document  of  like  import, 
granted  by  any  court  or  authority  having  the  requisite 
power  in  such  matters,  shall  be  sufficient  justification  and 
authority  to  the  directors  for  paying  such  deposit,  in 
pursuance  of  and  in  conformity  to  such  probate,  letters  of 
administration,  or  other  document  as  aforesaid.  (63-64 
v.,  c.  26,  s.  20.) 

DOMINION  GOVERNMENT  CHEQUES. 

98.  The  bank  shall  not  charge  any  discount  or  com- 
mission for  the  cashing  of  any  official  cheque  of  the  govern- 
ment of  Canada  or  of  any  department  thereof,  whether 
drawn  on  the  bank  cashing  the  cheque  or  on  any  other 
bank.     (53  V.,  c.  31,  s.  103.) 


=54 


H is 1 0  7^ y     of    Banking    in     Canada 

THE    PURCHASE    OF   THE    ASSETS    OF    A    BANK. 

99.  Any  bank  may  sell  the  whole  or  any  portion  of  its 
assets  to  any  other  bank  which  may  purchase  such  assets ; 
and  the  selling  and  purchasing  banks  may,  for  such  pur- 
poses, enter  into  an  agreement  of  sale  and  purchase,  which 
agreement  shall  contain  all  the  terms  and  conditions  con- 
nected with  the  sale  and  purchase  of  such  assets.  (63-64 
v.,  c.  26,  s.  33.) 

100.  The  consideration  for  any  such  sale  and  purchase 
may  be  as  agreed  upon  between  the  selling  and  purchas- 
ing banks. 

2.  If  the  consideration,  or  any  portion  thereof,  is  shares 
of  the  capital  stock  of  the  purchasing  bank,  the  agreement 
shall  provide  for  the  amount  of  the  shares  of  the  purchasing 
bank  to  be  paid  to  the  selling  bank. 

3.  Until  such  shares  so  paid  to  the  selling  bank  have  been 
sold  by  such  bank,  or  have  been  distributed  among  and 
accepted  by  the  shareholders  of  such  bank,  they  shall 
not  be  considered  issued  shares  of  the  purchasing  bank 
for  the  purposes  of  its  note  circulation.  (63-64  V.,  c. 
26,  s.  34.) 

loi.  The  agreement  of  sale  and  purchase  shall  be  sub- 
mitted to  the  shareholders  of  the  selling  bank,  either  at  the 
annual  general  meeting  of  such  bank  or  at  a  special  general 
meeting  thereof  called  for  the  purpose. 

2.  A  copy  of  the  agreement  shall  be  mailed,  postpaid,  to 
each  shareholder  of  such  bank  to  his  last  known  address, 
at  least  four  weeks  previously  to  the  date  of  the  meeting 
at  which  the  agreement  is  to  be  submitted,  together  with 
a  notice  of  the  time  and  place  of  the  holding  of  such  meet- 
ing.    (63-64  v.,  c.  26,  s.  35.) 

102.  If  at  such  meeting  the  agreement  is  approved  by 
resolution  carried  by  the  votes  of  shareholders,  present 
in  person  or  represented  by  proxy,  representing  not  less 
than  two-thirds  of  the  amount  of  the  subscribed  capital 


255 


National    Monetary     Commission 

stock  of  the  bank,  the  agreement  may  be  executed  under 
the  seals  of  the  banks,  parties  thereto,  and  appHcation  may 
be  made  to  the  governor  in  council,  through  the  minister, 
for  approval  thereof. 

2,  Until  the  agreement  is  approved  by  the  governor  in 
council  it  shall  not  be  of  any  force  or  effect.  (63-64  V., 
c.  26,  s.  36.) 

103.  If  the  agreement  provides  for  the  payment  of  the 
consideration  for  such  sale  and  purchase,  in  whole  or  in 
part,  in  shares  of  the  capital  stock  of  the  purchasing  bank, 
and  for  such  purpose  it  is  necessary  to  increase  the  capital 
stock  of  such  bank,  the  agreement  shall  not  be  executed 
on  behalf  of  the  purchasing  bank,  unless  nor  until  it  is 
approved  by  the  shareholders  thereof  at  the  annual  gen- 
eral meeting,  or  at  a  special  general  meeting  of  such  share- 
holders.    (63-64  v.,  c.  26,  s.  2>7-) 

104.  The  governor  in  council  may,  on  the  application  for 
his  approval  of  the  agreement ,  approve  of  the  increase  of 
the  capital  stock  of  the  purchasing  bank,  which  is  necessary 
to  provide  for  the  payment  of  the  shares  of  such  bank  to 
the  selling  bank,  as  provided  in  the  said  agreement,  (63- 
64  v.,  c.  26,  s.  38.) 

105.  The  provisions  of  this  act  with  regard  to  (a)  the 
increase  of  the  capital  stock  of  the  bank  by  by-law  of  the 
shareholders  approved  by  the  treasury  board ;  and  (6)  the 
allotment  and  sale  of  such  increased  stock  shall  not  apply 
to  any  increase  of  stock  made  or  provided  for  under  the 
authority  of  the  last  two  preceding  sections.  (63-64  V., 
c.  26,  s.  38.) 

106.  The  approval  of  the  governor  in  council  shall  not 
be  given  to  the  agreement  unless  (a)  the  approval  thereof 
is  recommended  by  the  treasury  board;  {h)  the  applica- 
tion for  approval  thereof  is  made,  by  or  on  behalf  of  the 
bank  executing  it,  within  three  months  from  the  date  of 
execution  of  the  agreement;  and  (c)  it  appears  to  the 
satisfaction  of  the  governor  in  council  that  all  the  require- 


History    of    Banking    in     Canada 

ments  of  this  act  in  connection  with  the  approval  of  the 
agreement  by  the  shareholders  of  the  selling  and  purchas- 
ing banks  have  been  complied  with,  and  that  notice  of 
the  intention  of  the  banks  to  apply  to  the  governor  in 
council  for  the  approval  of  the  agreement  has  been  pub- 
lished for  at  least  four  weeks  in  the  Canada  Gazette,  and 
in  one  or  more  newspapers  published  in  places  w^here  the 
chief  offices  or  places  of  business  of  the  banks  are  situate. 

2.  Such  banks  shall  afford  all  information  that  the 
minister  requires. 

3.  Nothing  herein  contained  shall  be  construed  to  pre- 
vent the  governor  in  council  or  the  treasury  board  from 
refusing  to  approve  of  the  agreement  or  to  recommend  its 
approval.     (63-64  V.,  c.  26,  s.  39.) 

107.  The  agreement  shall  not  be  approved  of  unless  it 
appears  that  (a)  proper  provisions  have  been  made  for  the 
payment  of  the  liabilities  of  the  selling  bank;  (6)  the 
agreement  provides  for  the  assumption  and  payment  by 
the  purchasing  bank  of  the  notes  of  the  selling  bank  issued 
and  intended  for  circulation,  outstanding  and  in  circula- 
tion; and,  (c)  the  amounts  of  the  notes  of  both  the  pur- 
chasing and  selling  banks,  issued  for  circulation,  outstand- 
ing and  in  circulation,  as  shown  by  the  then  last  monthly 
returns  of  the  banks,  do  not  together  exceed  the  then 
paid-up  capital  of  the  purchasing  bank;  or,  if  the  amount 
of  such  notes  does  exceed  such  paid-up  capital,  an  amount 
in  cash,  equal  to  the  excess  of  such  notes  over  such  paid-up 
capital,  has  been  deposited  by  the  purchasing  bank  with 
the  minister. 

2.  The  amount  so  deposited  as  aforesaid  shall  be  held 
by  the  minister  as  security  for  the  redemption  of  the  said 
excess  of  notes;  and,  when  such  excess,  or  any  portion 
thereof,  has  been  redeemed  and  cancelled,  the  amount  so 
deposited,  or  an  amount  equal  to  the  amount  of  excess 
so  redeemed  and  cancelled,  shall,  from  time  to  time,  be 
repaid  by  the  minister  to  the  purchasing  bank,  but  with- 

257 


National    Monetary     Commission 

out  interest,  on  the  application  of  such  bank,  and  on  the 
production  of  such  evidence  as  the  minister  may  require 
to  show  that  the  notes  in  regard  to  which  such  repayment 
is  asked  have  been  redeemed  and  canceUed.  (63-64  V., 
c.  27,  s,  I.) 

108.  The  notes  of  the  seUing  bank  so  assumed  and  to 
be  paid  by  the  piurchasing  bank  shall,  on  the  approval  of 
the  agreement,  be  deemed  to  be,  for  all  intents  and  pur- 
poses, notes  of  the  purchasing  bank  issued  for  circulation; 
and  the  purchasing  bank  shall  be  liable  in  the  same  man- 
ner and  to  the  same  extent  as  if  it  had  issued  them  for 
circulation. 

2.  The  amount  at  the  credit  of  the  selling  bank  in  the 
circulation  fund  shall,  on  the  approval  of  the  agreement, 
be  transferred  to  the  credit  of  the  purchasing  bank. 

3.  The  notes  of  the  selling  bank  shall  not  be  reissued, 
but  shall  be  called  in,  redeemed,  and  cancelled  as  quickly 
as  possible.     (63-64  V.,  c.  26,  s.  41.) 

109.  The  approval  by  the  governor  in  council  of  the 
agreement  shall  be  evidenced  by  a  certified  copy  of  the 
order  in  council  approving  thereof. 

2.  Such  certified  copy  shall  be  conclusive  evidence  of 
the  approval  of  the  agreement  therein  referred  to,  and  of 
the  regularity  of  all  proceedings  in  connection  therewith. 
(63-64  v.,  c.  26,  s.  42.) 

no.  On  the  agreement  being  approved  of  by  the  gov- 
ernor in  council,  the  assets  therein  referred  to  as  sold  and 
purchased  shall,  in  accordance  with  and  subject  to  the 
terms  thereof,  and  without  any  further  conveyance,  be- 
come vested  in  the  purchasing  bank. 

2.  The  selling  bank  shall,  from  time  to  time,  subject  to 
the  terms  of  the  agreement,  execute  such  formal  and 
separate  conveyances,  assignments,  and  assurances,  for 
registration  purposes  or  otherwise,  as  are  reasonably 
required  to  confirm  or  evidence  the  vesting  in  the  pur- 


^58 


History    of    Banking     in     Canada 

chasing  bank  of  the  full  title  or  ownership  of  the  assets 
referred  to  in  the  agreement  (63-64  V.,  c.  26,  s.  43.) 

111.  As  soon  as  the  agreement  is  approved  of  by  the 
governor  in  council,  the  selling  bank  shall  cease  to  issue  or 
reissue  notes  for  circulation,  and  shall  cease  to  transact 
any  business,  except  such  as  is  necessary  to  enable  it  to 
carry  out  the  agreement,  to  realize  upon  any  assets  not 
included  in  the  agreement,  to  pay  and  discharge  its  liabili- 
ties, and  generally  to  wind  up  its  business;  and  the  charter 
or  act  of  incorporation  of  such  bank,  and  any  acts  in 
amendment  thereof  then  in  force,  shall  continue  in  force 
only  for  the  purposes  in  this  section  specified.  (63-64  V., 
c.  26,  s.  44.) 

RETURNS. 

112.  Monthly  returns  shall  be  made  b}^  the  bank  to  the 
minister  in  the  form  set  forth  in  Schedule  D  to  this  act. 

2.  Such  returns  shall  be  made  up  and  sent  in  within  the 
first  fifteen  days  of  each  month,  and  shall  exhibit  the  con- 
dition of  the  bank  on  the  last  juridical  day  of  the  month 
last  preceding. 

3.  Such  returns  shall  be  signed  by  the  chief  accountant 
and  by  the  president,  or  vice-president,  or  the  director 
then  acting  as  president,  and  by  the  manager,  cashier,  or 
other  principal  officer  of  the  bank  at  its  chief  place  of 
business.     (53  V.,  c.  31,  s.  85.) 

113.  The  minister  may  also  call  for  special  returns  from 
any  bank,  whenever,  in  his  judgment,  they  are  necessary 
to  afford  a  full  and  complete  knowledge  of  its  condition. 

2.  Such  special  returns  shall  be  made  and  signed  in  the 
manner  and  by  the  persons  specified  in  the  last  preceding 
section. 

3.  Such  special  returns  shall  be  made  and  sent  in  within 
thirty  days  from  the  date  of  the  demand  therefor  by  the 
minister:  Provided,  That  the  minister  may  extend  the 
time  for  sending  in  such  special  returns  for  such  further 


259 


National    M on  et ar y     Commission 

period,  not  exceeding  thirty  days,  as  he  thinks  expedient. 
(53  v.,  0.31,8.86.) 

114.  The  bank  shaU,  within  twenty  days  after  the  close 
of  each  calendar  year,  transmit  or  deliver  to  the  minister  a 
return  (a)  of  all  dividends  which  have  remained  unpaid 
for  more  than  five  years;  and  (6)  of  all  amounts  or  bal- 
ances in  respect  of  which  no  transactions  have  taken  place, 
or  upon  which  no  interest  has  been  paid,  during  the  five 
years  prior  to  the  date  of  such  return:  Provided,  That,  in 
the  case  of  moneys  deposited  for  a  fixed  period,  the  said 
term  of  five  years  shall  be  reckoned  from  the  date  of  the 
termination  of  such  fixed  period. 

2.  The  return  mentioned  in  the  last  preceding  subsec- 
tion shall  set  forth  (a)  the  name  of  each  shareholder  or 
creditor  to  whom  such  dividends,  amounts,  or  balances  are, 
according  to  the  books  of  the  bank,  payable;  (6)  the  last 
known  address  of  each  such  shareholder  or  creditor;  (c) 
the  amount  due  to  each  such  shareholder  or  creditor;  {d) 
the  agency  of  the  bank  at  which  the  last  transaction  took 
place;  {e)  the  date  of  such  last  transaction;  and,  (/)  if 
such  shareholder  or  creditor  is  known  to  the  bank  to  be 
dead,  the  names  and  addresses  of  his  legal  representatives, 
so  far  as  known  to  the  bank. 

3.  The  bank  shall  likewise,  within  twenty  days  after  the 
close  of  each  calendar  year,  transmit  or  deliver  to  the  min- 
ister a  return  of  all  drafts  or  bills  of  exchange  issued  by 
the  bank  to  any  person  and  remaining  unpaid  for  more 
than  five  years  prior  to  the  date  of  such  return,  setting 
forth,  so  far  as  known,  (a)  the  names  of  the  persons  to 
whom  or  at  whose  request  such  drafts  or  bills  of  exchange 
were  issued;  (6)  the  addresses  of  such  persons;  (c)  the 
names  of  the  payees  of  such  drafts  or  bills  of  exchange; 
{d)  the  amounts  and  dates  of  such  drafts  or  bills  of  ex- 
change; {e)  the  names  of  the  places  where  such  drafts  or 
bills  of  exchange  were  payable ;  and  (/)  the  agencies  of  the 


9.60 


History     of    Banking     in     Canada 

bank,  respectively,  from  which  such  drafts  or  bills  of  ex- 
change were  issued. 

4.  The  rettu"ns  required  by  the  foregoing  provisions  of 
this  section  shall  be  signed  by  the  chief  accountant,  and 
by  the  president  or  vice-president  or  the  director  then 
acting  as  president,  and  by  the  manager,  cashier,  or  other 
principal  officer  of  the  bank,  at  its  chief  place  of  business. 

5.  The  bank  shall  also,  within  twenty  days  after  the 
close  of  each  calendar  year,  transmit  or  deliver  to  the  min- 
ister a  certified  list  showing  (a)  the  names  of  the  share- 
holders of  the  bank  on  the  last  day  of  such  calendar  year, 
with  their  additions  and  residences;  (6)  the  number  of 
shares  then  held  by  them,  respectively;  and  (c)  the  value 
at  par  of  such  shares. 

6.  The  minister  shall  lay  such  returns  and  lists  before 
Parliament  at  the  next  session  thereof.  (53  V.,  c.  31,  ss. 
87  and  88;  63-64  V.,  c.  26,  s.  21.) 

PAYMENTS    TO    THE    MINISTER    UPON    WINDING    UP. 

115.  If,  in  the  event  of  the  winding  up  of  the  business 
of  the  bank  in  insolvency,  or  under  any  general  winding- 
up  act,  or  otherwise,  any  moneys  payable  by  the  liquida- 
tor, either  to  shareholders  or  depositors,  remain  un- 
claimed (a)  for  the  period  of  three  years  from  the  date 
of  suspension  of  payment  by  the  bank;  or  (6)  for  a  like 
period  from  the  commencement  of  the  winding  up  of 
such  business;  or  (c)  until  the  final  winding  up  of  such 
business,  if  the  business  is  finally  wound  up  before  the 
expiration  of  the  said  three  years;  such  moneys  and  all 
interest  thereon  shall,  notwithstanding  any  statute  of 
limitations  or  other  act  relating  to  prescription,  be  paid 
to  the  minister,  to  be  held  by  him  subject  to  all  rightful 
claims  on  behalf  of  any  person  other  than  the  bank. 

2.  If  a  claim  to  any  moneys  so  paid  is  thereafter  estab- 
lished to  the  satisfaction  of  the  treasury  board,  the  gov- 
ernor in  council  shall,  on  the  report  of  the  treasury  board, 

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National    Monetary     Commission 

direct  payment  thereof  to  be  made  to  the  person  entitled 
thereto,  together  with  interest  on  the  principal  sum 
thereof,  at  the  rate  of  three  per  centum  per  annum,  for 
a  period  not  exceeding  six  years  from  the  date  of  pay- 
ment thereof  to  the  minister  as  aforesaid :  Provided,  That 
no  such  interest  shall  be  paid  or  payable  on  such  principal 
sum  unless  interest  thereon  was  payable  by  the  bank 
paying  the  same  to  the  minister. 

3.  Upon  payment  to  the  minister  as  herein  provided, 
the  bank  and  its  assets  shall  be  held  to  be  discharged  from 
further  liability  for  the  amounts  so  paid.  (53  V.,  c.  31, 
s.  88.) 

116.  Upon  the  winding  up  of  a  bank  in  insolvency  or 
under  any  general  winding-up  act,  or  otherwise,  the 
assignees,  liquidators,  directors,  or  other  officials  in  charge 
of  such  winding  up,  shall,  before  the  final  distribution  of 
the  assets,  or  within  three  years  from  the  commencement 
of  the  suspension  of  payment  by  the  bank,  whichever 
shall  first  happen,  pay  over  to  the  minister  a  sum,  out  of 
the  assets  of  the  bank,  equal  to  the  amount  then  out- 
standing of  the  notes  intended  for  circulation  issued  by 
the  bank. 

2.  Upon  such  payment  being  made,  the  bank  and  its 
assets  shall  be  relieved  from  all  further  liability  in  respect 
of  such  outstanding  notes. 

3.  The  sum  so  paid  shall  be  held  by  the  minister  and 
applied  for  the  purpose  of  redeeming,  whenever  presented, 
such  outstanding  notes,  without  interest.  (53  V.,  c.  31, 
s.  88.) 

THE    CURATOR. 

117.  The  association  shall,  if  a  bank  suspends  pay- 
ment in  specie  or  Dominion  notes  of  any  of  its  liabilities 
as  they  accrue,  forthwith  appoint  a  curator  to  supervise 
the  affairs  of  such  bank. 


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History    of    Banking    in     Canada 

2.  The  association  may  at  any  time  remove  the  curator, 
and  may  appoint  another  person  to  act  in  his  stead. 
(63-64  v.,  c.  26,  s.  24.) 

118.  The  appointment  of  the  curator  shall  be  made  in 
the  manner  provided  for  in  the  by-law  of  the  association 
made  in  that  behalf  as  hereinafter  provided. 

2.  If  there  is  no  such  by-law  the  appointment  shall  be 
made  in  writing  by  the  president  of  the  association,  or  by 
the  person  acting  as  president.     (63-64  V.,  c.  26,  s.  25.) 

119.  The  curator  shall  assume  supervision  of  the  affairs 
of  the  bank,  and  of  all  necessary  arrangements  for  the 
payment  of  the  notes  of  the  bank  issued  for  circulation, 
and,  at  the  time  of  his  appointment,  outstanding  and  in 
circulation. 

2.  The  curator  shall  generally  have  all  powers  and 
shall  take  all  steps  and  do  all  things  necessary  or  expedient 
to  protect  the  rights  and  interests  of  the  creditors  and 
shareholders  of  the  bank,  and  to  conserve  and  ensure 
the  proper  disposition,  according  to  law,  of  the  assets  of 
the  bank;  and,  for  the  purposes  of  this  section,  he  shall 
have  free  and  full  access  to  all'  books,  accounts,  docu- 
ments, and  papers  of  the  bank. 

3.  The  curator  shall  continue  to  supervise  the  affairs 
of  the  bank  until  he  is  removed  from  office,  or  until  the 
bank  resumes  business,  or  until  a  liquidator  is  duly 
appointed  to  wind  up  the  business  of  the  bank.  (63-64 
v.,  c.  26,  s.  26.) 

120.  The  president,  vice-president,  directors,  general 
manager,  managers,  clerks,  and  officers  of  the  bank  shall 
give  and  afford  to  the  curator  all  such  information  and 
assistance  as  he  requires  in  the  discharge  of  his  duties. 
(63-64  v.,  c.  26,  s.  27.) 

121.  No  by-law,  regulation,  resolution,  or  act,  touch- 
ing the  affairs  or  management  of  the  bank,  passed,  made, 
or  done  by  the  directors  during  the  time  the  curator  is  in 
charge  of  the  bank,  shall  be  of  any  force  or  effect  until 

263 


National     Monetary     Commission 

approved  in  writing  by  the  curator.      (63-64  V.,  c.   26, 
s.  27.) 

122.  The  curator  shall  make  all  returns  and  reports, 
and  shall  give  all  information  to  the  minister,  touching 
the  affairs  of  the  bank,  that  the  minister  requires  of  him. 
(63-64  v.,  c.  26,  s.  28.) 

123.  The  remuneration  of  the  curator  for  his  services, 
and  his  expenses  and  disbursements  in  connection  with 
the  discharge  of  his  duties,  shall  be  fixed  and  determined 
by  the  association,  and  shall  be  paid  out  of  the  assets  of 
the  bank,  and,  in  case  of  the  winding  up  of  the  bank, 
shall  rank  on  the  estate  equally  with  the  remuneration 
of  the  liquidator.      (63-64  V.,  c.  26,  s.  29.) 

BY-LAWS    OF    THE    CANADIAN    BANKERS'    ASSOCIATION. 

124.  The  association  may,  at  any  meeting  thereof,  with 
the  approval  of  two-thirds  in  number  of  the  banks  repre- 
sented at  such  meeting,  if  the  banks  so  approving  have  at 
least  two-thirds  in  par  value  of  the  paid-up  capital  of  the 
banks  so  represented,  make  by-laws,  rules  and  regulations 
respecting,  (a)  all  matters  relating  to  the  appointment 
or  removal  of  the  curator,  and  his  powers  and  duties; 
(6)  the  supervision  of  the  making  of  the  notes  of  the 
banks  which  are  intended  for  circulation,  and  the  delivery 
thereof  to  the  banks ;  (c)  the  inspection  of  the  disposition 
made  by  the  banks  of  such  notes;  {d)  the  destruction  of 
notes  of  the  banks ;  and  {e)  the  imposition  of  penalties  for 
the  breach  or  nonobservance  of  any  by-law,  rule  or  regu- 
lation made  by  virtue  of  this  section. 

2.  No  such  by-law,  rule  or  regulation,  and  no  amend- 
ment or  repeal  thereof,  shall  be  of  any  force  or  effect 
until  approved  by  the  treasury  board. 

3,  Before  any  such  by-law,  rule  or  regulation,  or  any 
amendment  or  repeal  thereof  is  so  approved,  the  treasury 
board  shall  submit  it  to  every  bank  which  is  not  a  member 
of  the  association,  and  give  to  each  such  bank  an  oppor- 

264 


History     of    Banking     in     Canada 

tunity  of  being   heard   before   the   treasury   board   with 
respect  thereto. 

4.  The  association  shall  have  all  powers  necessary  to 
carry  out,  or  to  enforce  the  carrying  out,  of  any  by-law, 
rule  or  regulation,  or  any  amendment  thereof,  so  approved 
by  the  treasury  board.     (63-64  V.,  c.  26,  ss.  30  and  31.) 

INSOIvVENCY. 

125.  In  the  event  of  the  property  and  assets  of  the 
bank  being  insufficient  to  pay  its  debts  and  liabiHties,  each 
shareholder  of  the  bank  shall  be  liable  for  the  deficiency, 
to  an  amount  equal  to  the  par  value  of  the  shares  held 
by  him,  in  addition  to  any  amount  not  paid  up  on  such 
shares.     (53  V.,  c.  31,  s.  89.) 

126.  The  liabiUty  of  the  bank,  under  any  law,  custom 
or  agreement  to  repay  moneys  deposited  with  it  and 
interest,  if  any,  and  to  pay  dividends  declared  and  pay- 
able on  its  capital  stock,  shall  continue,  notwithstanding 
any  statute  of  limitations,  or  any  enactment  or  law 
relating  to  prescription. 

2,  This  section  applies  to  moneys  heretofore  or  hereafter 
deposited,  and  to  dividends  heretofore  or  hereafter 
declared.     (53  V.,  c.  31,  s.  90.) 

127.  Any  suspension  by  the  bank  of  payment  of  any 
of  its  liabilities  as  they  accrue,  in  specie  or  Dominion 
notes,  shall,  if  it  continues  for  ninety  days  consecutively, 
or  at  intervals  within  twelve  consecutive  months,  consti- 
tute the  bank  insolvent,  and  work  a  forfeiture  of  its 
charter  or  act  of  incorporation,  so  far  as  regards  all  further 
banking  operations. 

2.  The  charter  or  act  of  incorporation  of  the  bank  shall, 
in  such  case,  remain  in  force  only  for  the  purpose  of 
enabling  the  directors,  or  other  lawful  authority,  to  make 
and  enforce  the  calls  mentioned  in  the  next  following 
section  of  this  act,  and  to  wind  up  the  business  of  the 
bank.      (53  V.,  c.  31,  s.  91.) 


National     Monetary     Commission 

128.  If  any  suspension  of  payment  in  full,  in  specie  or 
Dominion  notes,  of  all  or  any  of  the  notes  or  other  liabili- 
ties of  the  bank,  continues  for  three  months  after  the 
expiration  of  the  time  which,  under  the  last  preceding 
section,  would  constitute  the  bank  insolvent,  and  if  no 
proceedings  are  taken  under  any  act  for  the  winding  up 
of  the  bank,  the  directors  shall  make  calls  on  the  share- 
holders thereof,  to  the  amount  they  deem  necessary  to 
pay  all  the  debts  and  liabilities  of  the  bank,  without 
waiting  for  the  collection  of  any  debts  due  to  the  bank  or 
the  sale  of  any  of  its  assets  or  property. 

2.  Such  calls  shall  be  made  at  intervals  of  thirty  days. 

3.  Such  calls  shall  be  made  upon  notice  to  be  given  at 
least  thirty  days  prior  to  the  day  on  which  any  such  call 
shall  be  payable. 

4.  Any  number  of  such  calls  may  be  made  by  one 
resolution. 

5.  No  such  call  shall  exceed  twenty  per  centum  on  each 
share. 

6.  Payment  of  such  calls  may  be  enforced  in  like  man- 
ner as  payment  of  calls  on  unpaid  stock  may  be  enforced. 

7.  The  first  of  such  calls  may  be  made  within  ten  days 
after  the  expiration  of  the  said  three  months. 

8.  In  the  event  of  proceedings  being  taken,  under  any 
act,  for  the  winding  up  of  the  bank  in  consequence  of  the 
insolvency  of  the  bank,  the  said  calls  shall  be  made  in 
the  manner  prescribed  for  the  making  of  such  calls  in 
such  act. 

9.  Any  failure  on  the  part  of  any  shareholder  liable  to 
any  such  call  to  pay  the  same  when  due,  shall  work  a 
forfeiture  by  such  shareholder  of  all  claim  in  or  to  any 
part  of  the  assets  of  the  bank:  Provided,  That  such  call, 
and  any  further  call  thereafter,  shall  nevertheless  be 
recoverable  from  him  as  if  no  such  forfeiture  had  been 
incurred.     (53  V.,  c.  31,  ss.  92,  93,  and  94.) 


266 


History     of    Banking    in     Canada 

129.  Nothing  contained  in  the  four  sections  last  pre- 
ceding shall  be  construed  to  alter  or  diminish  the  addi- 
tional liabilities  of  the  directors  as  herein  mentioned  and 
declared.     (53  V.,  c.  31,  s.  95.) 

130.  (a)  Persons  who,  having  been  shareholders  of  the 
bank,  have  only  transferred  their  shares,  or  any  of  them, 
to  others,  or  registered  the  transfer  thereof,  within  sixty 
days  before  the  commencement  of  the  suspension  of  pay- 
ment by  the  bank;  and,  (6)  Persons  whose  subscriptions 
to  the  stock  of  the  bank  have  been  cancelled,  in  manner 
hereinbefore  provided,  within  the  said  period  of  sixty 
days  before  the  commencement  of  the  suspension  of  pay- 
ment by  the  bank ;  shall  be  liable  to  all  calls  on  the  shares 
held  or  subscribed  for  by  them,  as  if  they  held  such 
shares  at  the  time  of  such  suspension  of  paym.ent,  saving 
their  recourse  against  those  by  whom  such  shares  were 
then  actually  held.     (53  y.,  c.  31,  s.  96.) 

131.  In  the  case  of  the  insolvency  of  any  bank,  (a)  the 
payment  of  the  notes  issued  or  re-issued  by  such  bank, 
intended  for  circulation,  and  then  in  circulation,  together 
with  any  interest  paid  or  payable  thereon  as  hereinbefore 
provided,  shall  be  the  first  charge  upon  the  assets  of  the 
bank;  {b)  the  payment  of  any  amount  due  to  the  govern- 
ment of  Canada,  intrust  or  otherwise,  shall  be  the  second 
charge  upon  such  assets;  (c)  the  payment  of  any  amount 
due  to  the  government  of  any  of  the  provinces,  in  trust  or 
otherwise,  shall  be  the  third  charge  upon  such  assets;  and, 
{d)  the  amount  of  any  penalties  for  which  the  bank  is 
liable  shall  not  form  a  charge  upon  the  assets  of  the  bank, 
until  all  other  liabilities  are  paid.      (53  V.,  c.  31,  s.  53.) 

OFFENCES    AND   PENAIvTiES. 

The  commencement  of  business. 

132.  Every  director  or  provisional  director  of  any  bank 
and  every  other  person,  who,  before  the  obtaining  of  the 
certificate  from  the  treasury  board,  by  this  act  required, 

.   267 


National     M  o  n  et  ar  y     Com  m  i  s  s  i  o  n 

permitting  the  bank  to  issue  iiotes  or  commence  business, 
issues  or  authorizes  the  issue  of  any  note  of  such  bank, 
or  transacts  or  authorizes  the  transaction  of  any  business 
in  connection  with  such  bank,  except  such  as  is  by  this 
act  authorized  to  be  transacted  before  the  obtaining  of 
such  certificate,  is  guilty  of  an  offence  against  this  act. 
(53  v.,  c.  31,  s.  14.) 

The  sale  and  transfer  of  shares. 

133.  Any  person,  whether  principal,  broker  or  agent, 
who  wilfully  sells  or  transfers  or  attempts  to  sell  or  trans- 
fer (a)  any  share  or  shares  of  the  capital  stock  of  any  bank 
by  a  false  number;  or,  {b)  any  share  or  shares  of  which 
the  person  making  such  sale  or  transfer,  or  in  whose  name 
or  on  whose  behalf  the  same  is  made,  is  not  at  the  time  of 
such  sale,  or  attempted  sale,  the  registered  owner;  or, 
(c)  any  share  or  shares,  without  the  assent  to  such  sale  of 
the  registered  owner  thereof ;  is  guilty  of  an  offence  against 
this  act.      (53  v.,  c.  31,  s.  2>7-) 

The  cash  reserves. 

134.  Every  bank  which  at  any  time  holds  less  than 
forty  per  centum  of  its  cash  reserves  in  Dominion  notes 
shall  incur  a  penalty  of  five  hundred  dollars  for  each  such 
offence.     (53  V.,  c.  31,  s.  50.) 

The  issue  and  circulation  of  notes. 

135.  If  the  total  amount  of  the  notes  of  the  bank  in 
circulation  at  any  time  exceeds  the  amount  authorized 
by  this  act  the  bank  shall,  (a)  if  the  amount  of  such  excess 
is  not  over  one  thousand  dollars,  incur  a  penalty  equal  to 
the  amount  of  such  excess;  or,  (6)  if  the  amount  of  such 
excess  is  over  one  thousand  dollars,  and  not  over  twenty 
thousand  dollars,  incur  a  penalty  of  one  thousand  dollars; 
or,  (c)  if  the  amount  of  such  excess  is  over  twenty  thou- 

268 


History    of    Banking    in     Canada 

sand  dollars,  and  not  over  one  hundred  thousand  dollars, 
incur  a  penalty  of  ten  thousand  dollars;  or,  (c/)  if  the 
amount  of  such  excess  is  over  one  hundred  thousand  dol- 
lars, and  not  over  two  hundred  thousand  dollars,  incur  a 
penalty  of  fifty  thousand  dollars;  or,  (e)  if  the  amount  of 
such  excess  is  over  two  hundred  thousand  dollars,  incur 
a  penalty  of  one  hundred  thousand  dollars.  (53  V.,  c.  31, 
s.  51.) 

136.  Every  person,  except  a  bank  to  which  this  act 
applies,  who  issues  or  reissues,  makes,  draws,  or  endorses 
any  bill,  bond,  note,  cheque  or  other  instrument,  intended 
to  circulate  as  money,  or  to  be  used  as  a  substitute  for 
money,  for  any  amount  whatsoever,  shall  incur  a  penalty 
of  four  hundred  dollars. 

2.  Such  penalty  shall  be  recoverable  with  costs,  in  any 
court  of  competent  jurisdiction,  by  any  person  who  sues 
for  the  same. 

3.  A  moiety  of  such  penalty  shall  belong  to  the  person 
suing  for  the  same,  and  the  other  moiety  to  His  Majesty 
for  the  public  uses  of  Canada. 

4.  If  any  such  instrument  is  made  for  the  payment  of 
a  less  sum  than  twenty  dollars,  and  is  payable  either 
in  form  or  in  fact  to  the  bearer  thereof,  or  at  sight,  or  on 
demand,  or  at  less  than  thirty  days  thereafter,  or  is  over- 
due, or  is  in  any  way  calculated  or  designed  for  circula- 
tion, or  as  a  substitute  for  money,  the  intention  to  pass 
the  same  as  money  shall  be  presumed,  unless  such  instru- 
ment is,  (a)  a  cheque  on  some  chartered  bank  paid  by  the 
maker  directly  to  his  immediate  creditor;  or,  (6)  a  prom- 
issory note,  bill  of  exchange,  bond,  or  other  undertaking 
for  the  payment  of  money  made  or  delivered  by  the  maker 
thereof  to  his  immediate  creditor,  and,  (c)  not  designed 
to  circulate  as  money  or  as  a  substitute  for  money.  (53 
v.,  c.  31,  s.  60.) 

137.  Every  person  who  in  any  way  defaces  any  Domin- 
ion or  provincial  note,  or  bank  note,  whether  by  writing, 

8.  Doc.  332.  61-2 18  269 


National    Monetary     Commission 

printing,  drawing,  or  stamping  thereon,  or  by  attaching 
or  affixing  thereto,  anything  in  the  nature  or  form  of  an 
advertisement,  shall  be  liable  to  a  penalty  not  exceeding 
twenty  dollars.     (53  V.,  c.  31,  s.  61.) 

138.  (a)  Every  person  who,  being  president,  vice-presi- 
dent, director,  general  manager,  manager,  clerk,  or  other 
officer  of  the  bank,  issues  or  reissues,  during  any  period  of 
suspension  of  payment  by  the  bank  of  its  liabilities,  any 
notes  of  the  bank  payable  to  bearer  on  demand,  and  in- 
tended for  circulation,  or  authorizes  or  is  concerned  in  any 
such  issue  or  reissue;  and  (6)  if,  after  any  such  suspension, 
the  bank  resumes  business  without  the  consent  in  writing 
of  the  curator,  hereinbefore  provided  for,  every  person  who 
being  president,  vice-president,  director,  general  manager, 
manager,  clerk,  or  other  officer  of  the  bank  issues  or  re- 
issues, or  authorizes  or  is  concerned  in  the  issue  or  reissue 
of  any  such  notes  before  being  thereunto  authorized  by 
the  treasury  board;  and  (c)  every  person  who  accepts, 
receives,  or  takes,  or  authorizes  or  is  concerned  in,  the  ac- 
ceptance, receipt,  or  taking  of  any  such  notes,  knowing  the 
same  to  have  been  so  issued  or  reissued,  from  the  bank, 
or  from  such  president,  vice-president,  director,  general 
manager,  manager,  clerk,  or  other  officer  of  the  bank,  in 
payment  or  part  payment,  or  as  security  for  the  payment 
of  any  amount  due  or  owing  to  such  person  by  the  bank, 
is  guilty  of  an  indictable  offence,  and  liable  to  imprison-* 
ment  for  a  term  not  exceeding  seven  years,  or  to  a  fine  not 
exceeding  two  thousand  dollars,  or  to  both.  (63-64  V., 
c.  26,  s.  10.) 

139.  (a)  Every  person  who,  being  the  president,  vice- 
president,  director,  general  manager,  manager,  cashier,  or 
other  officer  of  the  bank,  pledges,  assigns,  or  hypothecates, 
or  authorizes  or  is  concerned  in  the  pledge,  assignment,  or 
hypothecation  of  the  notes  of  the  bank ;  and  (6)  every  per- 
son who  accepts,  receives  or  takes,  or  authorizes,  or  is  con- 
cerned in  the  acceptance  or' receipt  or  taking  of  such  notes 

270 


History     of    Banking     in     Canada 

as  a  pledge,  assignment,  or  hypothecation,  shall  be  liable 
to  a  fine  of  not  less  than  four  hundred  dollars  and  not 
more  than  two  thousand  dollars,  or  to  imprisonment  for 
not  more  than  two  years,  or  to  both.     (53  V.,  c.  31,  s.  52.) 

140.  (a)  Every  person  who,  being  the  president,  vice- 
president,  director,  general  manager,  manager,  cashier,  or 
other  officer  of  a  bank,  with  intent  to  defraud,  issues  or 
delivers,  or  authorizes  or  is  concerned  in  the  issue  or  de- 
livery of  notes  of  the  bank  intended  for  circulation  and 
not  then  in  circulation;  and  ih)  every  person  who,  with 
knowledge  of  such  intent,  accepts,  receives,  or  takes,  or 
authorizes,  or  is  concerned  in  the  acceptance,  receipt,  or 
taking  of  such  notes,  shall  be  guilty  of  an  indictable  offence 
and  liable  to  imprisonment  for  a  term  not  exceeding  seven 
years,  or  to  a  fine  not  exceeding  two  thousand  dollars,  or 
to  both.      (53  v.,  c.  31,  s.  52.) 

W arehonse  receipts,  bills  of  lading,  and  other  securities. 

141.  If  any  bank,  to  secure  the  payment  of  any  bill, 
note,  debt,  or  liability  acquires  or  holds  (a)  any  ware- 
house receipt  or  bill  of  lading ;  or  {b)  any  instrument  such 
as  is  by  this  act  authorized  to  be  taken  by  the  bank  to 
secure  money  lent  (i)  to  any  wholesale  purchaser  or  ship- 
per of  or  dealer  in  products  of  agriculture,  the  forest,  quarry 
and  mine,  or  the  sea,  lakes,  and  rivers,  or  to  any  whole- 
sale purchaser  or  shipper  of  or  dealer  in  live  or  dead  stock, 
and  the  products  thereof,  upon  the  security  of  such  prod- 
ucts, or  of  such  live  or  dead  stock,  or  the  products  thereof; 
or  (ii)  to  any  person  engaged  in  business  as  a  wholesale 
manufacturer  of  any  goods,  wares,  and  merchandise,  upon 
the  security  of  the  goods,  wares,  and  merchandise  manu- 
factured by  such  person,  or  procured  for  such  manufacture, 
such  bank  shall,  unless  (a)  such  bill,  note,  debt,  or  liability 
is  negotiated  or  contracted  at  the  time  of  the  acquisition 
by  the  bank  of  such  warehouse  receipt,  bill  of  lading,  or 
security;  or  (6)  such  bill,  note,  debt,  or  liability  is  nego- 

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National     M o  n  e  t ar y     Commission 

tiated  or  contracted  upon  the  written  promise  or  agree- 
ment that  such  warehouse  receipt,  bill  of  lading,  or  se- 
curity would  be  given  to  the  bank;  or  (c)  the  acquisition 
or  holding  by  the  bank  of  such  warehouse  receipt,  bill  of 
lading,  or  security  is  otherwise  authorized  by  this  act, 
incur  a  penalty  not  exceeding  five  hundred  dollars.  (53 
V.,c.  31,5.  79.) 

142.  If  any  debt  or  liability  to  the  bank  is  secured  by 
(a)  any  warehouse  receipt  or  bill  of  lading;  or  {b)  any 
other  security  such  as  is  mentioned  in  the  last  preceding 
section,  and  is  not  paid  at  maturity,  such  bank  shall,  if  it 
sells  the  goods,  wares,  and  merchandise  or  products  cov- 
ered by  such  warehouse  receipt,  bill  of  lading,  or  security, 
under  the  power  of  sale  conferred  upon  it  by  this  act. 
without  complying  with  the  provisions  to  which  the  exer- 
cise of  such  power  of  sale  is,  by  this  act,  made  subject, 
incur  a  penalty  not  exceeding  five  hundred  dollars.  (53 
v.,  c.  31,  s.  79;  63-64  v.,  c.  26,  s.  18.) 

143.  Every  person  is  guilty  of  an  indictable  offence  and 
liable  to  imprisonment  for  a  term  not  exceeding  two  years 
who  wilfully  makes  any  false  statement,  (a)  in  any  ware- 
house receipt  or  bill  of  lading  given  under  the  authority  of 
this  act  to  any  bank ;  or  (6)  in  any  instrument  given  to  any 
bank  under  the  authority  of  this  act,  as  security  for  any 
loan  of  money  made  by  the  bank  to  any  wholesale  pur- 
chaser or  shipper  of  or  dealer  in  products  of  agriculture,  the 
forest,  quarry,  and  mine,  or  the  sea,  lakes,  and  rivers,  or  to 
any  wholesale  purchaser,  or  shipper  of  or  dealer  in  live  or 
dead  stock  and  the  products  thereof,  whereby  any  such 
products  or  stock  is  assigned  or  transferred  to  the  bank  as 
security  for  the  payment  of  such  loan ;  or  (c)  in  any  instru- 
ment given  to  any  bank  under  the  authority  of  this  act,  as 
security  for  any  loan  of  money  made  by  the  bank  to  any 
person  engaged  in  business  as  a  wholesale  manufacturer  of 
any  goods,  wares,  and  merchandise,  whereby  any  of  the 
goods,  wares,  and  merchandise  manufactured  by  him,  or 

272 


History     of    Banking     in     C an  ad 


a 


procured  for  such  manufacture,  are  transferred  or  assigned 
to  the  bank  as  security  for  the  payment  of  such  loan.  (53 
v.,  c.  31,  s.  75.) 

144.  Every  person  who,  having  possession  or  control  of 
any  goods,  wares,  and  merchandise  covered  by  any  ware- 
house receipt  or  bill  of  lading,  or  by  any  such  security  as  in 
the  last  preceding  section  mentioned,  and  having  knowl- 
edge of  such  receipt,  bill  of  lading,  or  security,  without  the 
consent  of  the  bank  in  writing,  and  before  the  advance, 
bill,  note,  debt,  or  liability  thereby  secured  has  been  fully 
paid,  (a)  wilfully  alienates  or  parts  with  any  such  goods, 
wares,  or  merchandise;  or  (6)  wilfully  withholds  from  the 
bank  possession  of  any  such  goods,  wares,  and  merchandise, 
upon  demand,  after  default  in  payment  of  such  advance, 
bill,  note,  debt,  or  liability,  is  guilty  of  an  indictable  offence 
and  liable  to  imprisonment  for  a  term  not  exceeding  two 
years.     (53  V.,  c.  31,  s.  75;  63-64  V.,  c.  26,  s.  18.) 

145.  (a)  If  any  bank  having,  by  virtue  of  the  provisions 
of  this  act,  a  privileged  lien  for  any  debt  or  liability  for  any 
debt  to  the  bank,  on  the  shares  of  its  own  capital  stock  of 
the  debtor  or  person  liable,  neglects  to  sell  such  shares 
within  twelve  months  after  such  debt  or  liability  has  ac- 
crued and  become  payable;  or  (6)  if  any  such  bank  sells 
any  such  shares  without  giving  notice  to  the  holder  thereof 
of  the  intention  of  the  bank  to  sell  the  same,  by  mailing 
such  notice  in  the  post-office,  post  paid,  to  the  last  known 
address  of  such  holder,  at  least  thirty  days  prior  to  such 
sale,  such  bank  shall  incur,  for  each  such  offence,  a  pen- 
alty not  exceeding  five  hundred  dollars.  (53  V.,  c.  31, 
s.  79.) 

Prohibited  business. 

146.  If  any  bank,  except  as  authorized  by  this  act, 
either  directly  or  indirectly,  (a)  deals  in  the  buying  or  sell- 
ing or  bartering  of  goods,  wares,  and  merchandise,  or  en- 
gages or  is  engaged  in  any  trade  or  business  whatsoever;  or, 

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National    Monetary     Commission 

(b)  purchases,  deals  in,  or  lends  money  or  makes  advances 
upon  the  security  or  pledge  of  any  share  of  its  own  capital 
stock,  or  of  the  capital  stock  of  any  bank;  or  (c)  lends 
money  or  makes  advances  upon  the  security,  mortgage;  or 
hypothecation  of  any  lands,  tenements,  or  immovable 
property,  or  of  any  ships  or  other  vessels,  or  upon  the  se- 
curity of  any  goods,  wares,  and  merchandise,  such  bank 
shall  incur  a  penalty  not  exceeding  five  hundred  dollars. 
(53  v.,  c.  31,  s.  79.) 

Returns. 

147.  Every  bank  which  neglects  to  make  up  and  send  to 
the  minister,  within  the  first  fifteen  days  of  any  month,  any 
monthly  return  by  this  act  required  to  be  made  up  and 
sent  in  within  the  said  fifteen  days,  exhibiting  the  condi- 
tion of  the  bank  on  the  last  juridical  day  of  the  month  last 
preceding,  and  signed  in  the  manner  and  by  the  persons 
by  this  act  required,  shall  incur  a  penalty  of  fifty  dollars 
for  each  and  every  day,  after  the  expiration  of  such  time, 
during  which  the  bank  neglects  to  make  and  send  in  such 
return.      (53  V.,  c.  31,  s.  85.) 

148.  Every  bank  which  neglects  to  make  and  send  to  the 
minister,  within  thirty  days  from  the  date  of  the  demand 
therefor  by  the  minister,  or,  if  such  time  is  extended  by  the 
minister,  within  such  extended  time,  not  exceeding  thirty 
days,  as  the  minister  may  allow,  any  special  return,  signed 
in  the  manner  and  by  the  persons  by  this  act  required, 
which,  under  the  provisions  of  this  act,  the  minister  may, 
for  the  purpose  of  affording  a  full  and  complete  knowledge 
of  the  condition  of  the  bank,  call  for,  shall  incur  a  penalty 
of  five  hundred  dollars  for  each  and  every  day  during  which 
such  neglect  continues.     (53  V.,  c.  31,  s.  86.) 

149.  Every  bank  which  neglects  to  transmit  or  deliver 
to  the  minister,  within  twenty  days  after  the  close  of  any 
calendar  year,  a  return,  signed  in  the  manner  and  by  the 
persons  and  setting  forth  the  particulars  by  this  act  re- 

274 


History    of    Banking    in     Canada 

quired  in  that  behalf,  of  all  drafts  or  bills  of  exchange 
issued  by  the  bank  to  any  person  and  remaining  unpaid  for 
more  than  five  years  prior  to  the  date  of  such  return,  shall 
incur  a  penalty  of  fifty  dollars  for  each  and  every  day 
during  which  such  neglect  continues.      (63-64  V.,  c.  26,  s. 

21.) 

150.  Every  bank  which  neglects  to  transmit  or  deliver 
to  the  minister,  within  twenty  days  after  the  close  of  any 
calendar  year,  a  certified  list,  as  by  this  act  required,  show- 
ing (o)  the  names  of  the  shareholders  of  the  bank  on  the 
last  day  of  such  calendar  year,  with  their  additions  and 
residences;  {b)  the  number  of  shares  then  held  by  such 
shareholders  respectively;  and,  (c)  the  value  at  par  of 
such  shares,  shall  incur  a  penalty  of  fifty  dollars  for  each 
and  every  day  during  which  such  neglect  continues.  (53 
v.,  c.  31,  s.  87.) 

151.  Every  bank  which  neglects  to  transmit  or  deliver 
to  the  minister,  within  twenty  days  -after  the  close  of  any 
calendar  year,  a  return,  signed  in  the  manner  and  by  the 
persons  by  this  act  required,  of  all  dividends  which  have 
remained  unpaid  for  more  than  five  years,  and  also  of  all 
amounts  or  balances  in  respect  of  which  no  transactions 
have  taken  place,  or  upon  which  no  interest  has  been  paid, 
during  the  five  years  prior  to  the  date  of  such  return,  and 
setting  forth  such  further  particulars  as  are  by  this  act 
required  in  that  behalf,  shall  incur  a  penalty  of  fifty  dollars 
for  each  and  every  day  during  which  such  neglect  con- 
tinues. 

2,  The  said  term  of  five  years  shall,  in  case  of  moneys 
deposited  for  a  fixed  period,  be  reckoned  from  the  date 
of  the  termination  of  such  fixed  period.  (53  V.,  c.  31,  s. 
88.) 

152.  If  any  return  or  list,  mentioned  in  either  of  the 
last  five  preceding  sections,  is  transmitted  by  post,  the 
date  appearing,  by  the  post-office  stamp  or  mark  upon  the 
envelope  or  wrapper  inclosing  the  return  or  list  received 

275 


National    Monetary     Commission 

by  the  minister,  as  the  date  of  deposit  in  the  post-office 
of  the  place  at  which  the  chief  office  of  the  bank  was 
situated,  shall  be  taken  prima  facie,  for  the  purpose  of 
any  of  the  said  sections,  to  be  the  day  upon  which  such 
return  or  list  was  transmitted  to  the  minister.  (53  V., 
c.  31,  ss.  85  and  86;  63-64  V.,  c.  26,  s.  22.) 

1 53.  The  making  of  any  wilfully  false  or  deceptive  state- 
ment in  any  account,  statement,  return,  report,  or  other 
document  respecting  the  affairs  of  the  bank  is  an  indict- 
able offence  punishable,  unless  a  greater  punishment  is  in 
any  case  by  law  prescribed  therefor,  by  imprisonment  for 
a  term  not  exceeding  five  years. 

2.  Every  president,  vice-president,  director,  auditor, 
manager,  cashier,  or  other  officer  of  the  bank,  who  (a)  pre- 
pares, signs,  approves,  or  concurs  in  any  such  account, 
statement,  return,  report,  or  document  containing  such 
false  or  deceptive  statement;  or,  (6)  uses  the  same  with 
intent  to  deceive  or  mislead  any  person,  shall  be  held  to 
have  wilfully  made  such  false  or  deceptive  statement,  and 
shall  further  be  responsible  for  all  damages  sustained  by 
any  person  in  consequence  thereof.      (53  V.,  c.  31,  s.  99.) 

Calls  in  the  case  of  suspension  of  payment. 

154.  (a)  If  any  suspension  of  payment  in  full,  in  specie 
or  Dominion  notes,  of  all  or  any  of  the  notes  or  other  lia- 
bilities of  the  bank  continues  for  three  months  after  the 
expiration  of  the  time  which,  under  the  provisions  of  this 
act,  would  constitute  the  bank  insolvent;  and,  (6)  if  no 
proceedings  are  taken  under  any  act  for  the  winding  up 
of  the  bank;  and,  (c)  if  any  director  of  the  bank  refuses  to 
make  or  enforce,  or  to  concur  in  the  making  or  enforcing 
of  any  call  on  the  shareholders  of  the  bank,  to  any  amount 
which  the  directors  deem  necessary  to  pay  all  the  debts 
and  liabilities  of  the  bank,  such  director  shall  be  guilty  of 
an  indictable  offence,  and  liable  (a)  to  imprisonment  for 


276 


History     of    Banking     in     Canada 

any  term  not  exceeding  two  years;  and,  (6)  personally  for 
any  damages  suffered  by  any  such  default.  (53  V.,  c.  31, 
s.  92.) 

Undue  preference  to  the  hank's  creditors. 

155.  Every  person  who,  being  the  president,  vice-presi- 
dent, director,  manager,  cashier,  or  other  officer  of  the 
bank,  wilfully  gives  or  concurs  in  giving  to  any  creditor 
of  the  bank  any  fraudulent,  undue  or  unfair  preference 
over  other  creditors,  by  giving  security  to  such  creditor,  or 
by  changing  the  nature  of  his  claim,  or  otherwise  howso- 
ever, is  guilty  of  an  indictable  offence,  and  liable  {a)  to 
imprisonment  for  a  term  not  exceeding  two  years;  and, 
(6)  for  all  damages  sustained  by  any  person  in  consequence 
of  such  preference.     (53  V.,  c.  31,  s.  97.) 

The  using  of  the  title  ''Bank,''  etc. 

156.  Every  person  assuming  or  using  the  title  of  "  bank," 
"banking  company,"  "banking  house,"  "banking  asso- 
ciation," or  "banking  institution,"  without  being  author- 
ized so  to  do  by  this  act,  or  by  some  other  act  in  force  in 
that  behalf,  is  guilty  of  an  offence  against  this  act.  (53 
v.,  c.  31,  s.  100.) 

Penalty  for  offence  against  this  act. 

157.  Every  person  committing  an  offence,  declared  to 
be  an  offence  against  this  act,  shall  be  liable  to  a  fine  not 
exceeding  one  thousand  dollars,  or  to  imprisonment  for  a 
term  not  exceeding  five  years,  or  to  both,  in  the  discretion 
of  the  court  before  which  the  conviction  is  had.  (53  V., 
c.  31,  s.  lOI.) 

PROCEDURE. 

158.  The  amount  of  all  penalties  imposed  upon  a  bank 
for  any  violation  of  this  act  shall  be  recoverable  and  en- 
forceable, with  costs,  at  the  suit  of  His  Majesty  instituted 
by  the  attorney-general  of  Canada,  or  by  the  minister. 

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National    Monetary     Commission 

2.  Such  penalties  shall  belong  to  the  Crown  for  the  pub- 
lic uses  of  Canada:  Provided,  That  the  governor  in  council, 
on  the  report  of  the  treasury  board,  may  direct  that  any 
portion  of  any  penalty  be  remitted,  or  paid  to  any  person, 
or  applied  in  any  manner  deemed  best  adapted  to  attain  the 
objects  of  this  act,  and  to  secure  the  due  administration 
thereof.     (53  V.,  c.  31,  s.  98.) 


SCHEDUIvE  A. 

1 .  The  Bank  of  Montreal. 

2.  The  Bank  of  New  Brunswick. 

3.  The  Quebec  Bank. 

4.  The  Bank  of  Nova  Scotia. 

5.  The  St.  Stephen's  Bank. 

6.  The  Bank  of  Toronto. 

7.  The  Molsons  Bank. 

8.  The  Eastern  Townships  Bank. 

9.  The  Union  Bank  of  Halifax. 

0.  The  Ontario  Bank. 

1.  La  Banque  Nationale. 

2.  The  Merchants  Bank  of  Canada. 

3.  La  Banque  Provinciale  du  Canada. 

4.  The  People's  Bank  of  New  Brunswick. 

5.  The  Union  Bank  of  Canada. 

6.  The  Canadian  Bank  of  Commerce. 

7.  The  Royal  Bank  of  Canada. 

8.  The  Dominion  Bank. 

9.  The  Bank  of  Hamilton. 

20.  The  Standard  Bank  of  Canada. 

21.  La  Banque  de  St.  Jean. 

22.  La  Banque  d'Hochelaga. 

23.  La  Banque  de  vSt.  Hyacinthe. 

24.  The  Bank  of  Ottawa. 

25.  The  Imperial  Bank  of  Canada. 

278 


History    of    Banking    in     Canada 

26.  The  Western  Bank  of  Canada. 

27.  The  Traders'  Bank  of  Canada. 

28.  The  Sovereign  Bank  of  Canada. 

29.  The  MetropoHtan  Bank. 

30.  The  Crown  Bank  of  Canada. 

31.  The  Home  Bank  of  Canada. 

32.  The  Northern  Bank. 

2,2).  The  SterHng  Bank  of  Canada. 

34.  The  United  Empire  Bank  of  Canada. 

(63-64  v.,  c.  26,  s.  4,  and  sch.  A.) 


Schedule  B. 
an  act  to  incorporate  the  — -  bank. 

Whereas  the  persons  hereinafter  named  have,  by  their 
petition,  prayed  that  an  act  be  passed  for  the  purpose  of 

estabhshing  a  bank  in .,  and  it  is  expedient  to  grant 

the  prayer  of  the  said  petition: 

Therefore  His  Majesty,  by  and  with  the  advice  and  con- 
sent of  the  Senate  and  House  of  Commons  of  Canada, 
enacts  as  follows: 

1.  The  persons  hereinafter  named,  together  with  such 
others  as  become  shareholders  in  the  corporation  by  this 
act  created,  are  hereby  constituted  a  corporation  by  the 
name  of ,  hereinafter  called  the  bank. 

2.  The  capital  stock  of  the  bank  shall  be dollars. 

3.  The  chief  oflEice  of  the  bank  shall  be  at 

4 shall  be  the  provisional  directors  of  the 

bank. 

5.  This  act  shall,  subject  to  the  provisions  of  section  six- 
teen of  the  bank  act,  remain  in  force  until  the  first  day  of 
July,  in  the  year  one  thousand  nine  hundred  and  eleven. 
(53  v.,  c.  31,  sch.  B.;  63-64  v.,  c.  26,  s.  45.) 


279 


National     M  o  n  et  ar  y     Commission 

Schedule  C. 

In  consideration  of  an  advance  of dollars  made 

by  the Bank  to  A.  B.,  for  which  the  said  bank  holds 

the  following  bills  or  notes:  {describe  the  bills  or  notes,  if 
any) ,  [or,  in  consideration  of  the  discounting  of  the  follow- 
ing bills  or  notes  by  the Bank  forA.  B.:   {describe 

the  bills  or  notes),]  the  goods,  wares,  and  merchandise  men- 
tioned below  are  hereby  -assigned  to  the  said    bank  as 

security  for  the  payment  on  or  before  the day  of 

of  the  said  advance,  together  with  interest  thereon 

at  the  rate  of ....  per  centum  per  annum  from  the day 

of {or,  of  the  said  bills  or  notes,  or  renewals  thereof, 

or  substitutions  therefor,  and  interest  thereon,  or  as  the 
case  may  be). 

This  security  is  given  under  the  provisions  of  section 
eighty-eight  of  the  bank  act,  and  is  subject  to  the  pro- 
visions of  the  said  act. 

The  said  goods,  wares  and  merchandise,  are  now  owned 

by ,  and  are  now  in  the  possession  of 

,  and  are  free  from  any  mortgage,  lien,  or  charge 

thereon  {or  as  the  case  may  be) ,  and  are  in  {place  or  places 
where  the  goods  are),  and  are  the  following  {description  of 
goods  assigned) . 

Dated,  etc. 

(A^.  B. — The  bills  or  notes  and  the  goods,  etc.,  may  be  set 
out  in  schedules  annexed.) 
(63-64  v.,  c.  26,  s.  46  and  sch.  C.) 


Schedule  D. 

Return  of  the   liabilities   and  assets  of   the batik   on   the day 

of ,  A.  D. 

Capital  authorized $ 

Capital  subscribed 1 

Capital  paid  up 

Amount  of  rest  or  reserve  fund 

Rate  per  cent  of  last  dividend  declared per  cent. 

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History     of    Banking     i^^     Canada 

LIABILITIES. 

1.  Notes  in  circulation $ 

2.  Balance  due  to  Dominion  government,  after  deducting  advances 

for  credits,  pay-lists,  etc 

3.  Balances  due  to  provincial  governments 

4.  Deposits  by  the  public,  payable  on  demand,  in  Canada 

5.  Deposits  by  the  public,  payable  after  notice  or  on  a  fixed  day, 

in  Canada 

6.  Deposits  elsewhere  than  in  Canada 

7.  Loans  from  other  banks  in  Canada,  secured,  including  bills  re- 

discounted  

8.  Deposits  made  by  and  balances  due  to  other  banks  in  Canada. 

9.  Balances  due  to  agencies  of  the  bank,  or  to  other  banks  or 

agencies,  in  the  United  Kingdom 

10.  Balances  due  to  agencies  of  the  bank,  or  to  other  banks  or 

agencies,  elsewhere  than  in  Canada  and  the  United  Kingdom. 

1 1 .  Liabilities  not  included  under  foregoing  heads 


ASSETS. 

1 .  Specie » 1 

2 .  Dominion  notes 

3.  Deposits  with  Dominion  government  for  security  of  note  circu- 

lation   

4.  Notes  of  and  cheques  on  other  banks 

5.  Loans  to  other  banks  in  Canada,  secured,  including  bills  redis- 

counted 

6.  Deposits  made  with  and  balances  due  from  other  banks  in  Canada 

7.  Balances  due  from  agencies  of  the  bank,  or  from  other  banks  or 

agencies,  in  the  United  Kingdom 

8.  Balances  due  from  agencies  of  the  bank,  or  from  other  banks  or 

agencies,  elsewhere  than  in  Canada  and  the  United  Kingdom. 

9.  Dominion  government  and  provincial  government  securities 

10.  Canadian  municipal  securities,  and  British,  or  foreign,  or  colo- 

nial public  securities,  other  than  Canadian 

11.  Railway  and  other  bonds,  debentures,  and  stocks 

12.  Call  and  short  loans  on  stocks  and  bonds  in  Canada 

1 3 .  Call  and  short  loans  elsewhere  than  in  Canada 

14.  Current  loans  in  Canada 

15.  Current  loans  elsewhere  than  in  Canada 

16.  Loans  to  the  government  of  Canada 

17.  Loans  to  provincial  governments 

18.  Overdue  debts - 

19.  Real  estate  other  than  bank  premises 


281 


National    M  on  et  ar  y     Commission 

20.  Mortgages  on  real  estate  sold  by  the  bank 

21.  Bank  premises 

22.  Other  assets  not  included  under  the  foregoing  heads 


Aggregate  amount  of  loans  to  directors,  and  firms  of 
which  they  are  partners,  $. 

Average  amount  of  specie  held  during  the  month,  $.... 

Average  amount  of  Dominion  notes  held  during  the 
month,  $.... 

Greatest  amount  of  notes  in  circulation  at  any  time  dur- 
ing the  month,  %..... 

I  declare  that  the  above  return  has  been  prepared  under 
my  directions  and  is  correct  according  to  the  books  of  the 
bank. 

E.  F.,  Chief  Accountant. 

We  declare  that  the  foregoing  return  is  made  up  from 
the  books  of  the  bank,  and  that  to  the  best  of  our  knowl- 
edge and  belief  it  is  correct,  and  shows  truly  and  clearly  the 
financial  position  of  the  bank ;  and  we  further  declare  that 
the  bank  has  never,  at  any  time  during  the  period  to  which 
the  said  return  relates,  held  less  than  forty  per  centum  of 
its  cash  reserves  in  Dominion  notes. 

(Place) this day  of... 

A.  B.,  President. 
CD.,  General  Manager. 
(63-64  v.,  c.  26,  s.  47  and  sch.  D.) 


282 


Appendix  III. 

AMENDING  LEGISLATION  OF  1908. 

An  act  to  amend  the  bank  act. 

(7-8  Edw.  VII,  chap.  7.) 

[Assented  to  20th  July,  igo8.] 

His  Majesty,  by  and  with  the  advice  and  consent  of  the 
Senate  and  House  of  Commons  of  Canada,  enacts  as  fol- 
lows: 

I.  Section  61  of  the  bank  act,  chapter  29  of  the  Revised 
Statutes,  1906,  is  repealed,  and  the  following  is  substituted 
therefor : 

"61.  The  bank  may  issue  and  re-issue  its  notes  payable 
to  bearer  on  demand  and  intended  for  circulation:  Pro- 
vided, That  (a)  the  bank  shall  not,  during  any  period  of 
suspension  of  payment  of  its  liabilities,  issue  or  re-issue 
any  of  its  notes;  and  (6),  if,  after  any  such  suspension,  the 
bank  resumes  business  without  the  consent  in  writing  of 
the  curator,  hereinafter  provided  for,  it  shall  not  issue  or 
re-issue  any  of  its  notes  until  authorized  by  the  treasury 
board  so  to  do. 

"2.  No  such  note  shall  be  for  a  sum  less  than  five  dollars 
or  for  any  sum  which  is  not  a  multiple  of  five  dollars. 

"3.  The  total  amount  of  such  notes  in  circulation  at  any 
time  shall  not  exceed  the  amount  of  the  unimpaired  paid- 
up  capital  of  the  bank:  Provided,  That  during  the  usual 
season  of  moving  the  crops — that  is  to  say,  from  and  includ- 
ing the  first  day  of  October  in  any  year  to  and  including 
the  thirty-first  day  of  January  next  ensuing — in  addition  to 
the  said  amount  of  notes  hereinbefore  authorized  to  be 
issued  for  circulation,  the  bank  may  issue  its  notes,  to  an 

283 


National     Monetary     Commission 

amount  not  exceeding  fifteen  per  centum  of  the  combined 
unimpaired  paid-up  capital  and  reserve  or  rest  fund  of  the 
bank  as  stated  in  the  statutory  monthly  return  made  by 
the  bank  to  the  minister  for  the  month  immediately  pre- 
ceding that  in  which  the  additional  amount  is  issued. 

"4.  Whenever,  under  the  authority  of  the  proviso  to  the 
next  preceding  subsection  of  this  section,  the  issue  of  an 
additional  amount  of  notes  of  the  bank  has  been  made,  the 
general  manager,  or  other  chief  executive  officer  of  the 
bank  for  the  time  being,  shall  forthwith  give  notice  thereof 
by  registered  letter  addressed  to  the  minister  and  to  the 
president  of  the  Canadian  Bankers'  Association. 

"5.  While  its  notes  in  circulation  are  in  excess  of  the 
amount  of  its  unimpaired  paid-up  capital,  the  bank  shall 
pay  interest  to  the  minister  at  such  rate,  not  exceeding 
five  per  centum  per  annum,  as  is  fixed  by  the  governor  in 
council,  on  the  amount  of  its  notes  in  circulation  in  excess 
from  day  to  day;  and  the  interest  so  paid  shall  form  part 
of  the  consolidated  revenue  fund  of  Canada. 

"6.  A  return  shall  be  made  and  sent  by  the  bank  to  the 
minister  showing  the  amount  of  its  notes  in  circulation  for 
each  juridical  day  during  any  month  in  which  any  amount 
of  notes  in  excess  as  aforesaid  has  been  issued  or  is  out- 
standing. 

"7.  Such  return  shall  be  made  up  and  sent  within  the 
first  fifteen  days  of  the  month  next  after  that  in  which  any 
such  amount  in  excess  has  been  issued  or  is  outstanding, 
and  shall  be  accompanied  by  declarations  in  the  form  pre- 
scribed in  Schedule  D  to  this  act,  and  shall  be  signed  by  the 
persons  required  to  sign  the  monthly  returns  made  under 
section  112  of  this  act. 

"8.  The  provisions  of  section  153  of  this  act  shall  apply 
to  the  return  mentioned  in  the  next  preceding  subsection. 

"9.  Notwithstanding  anything  in  this  section  hereinbe- 
fore contained,  the  total  amount  of  such  notes  of  the  Bank 
of  British  North  America  in  circulation  at  any  time  shall 

284 


History     of    Banking     in     Canada 

not  exceed  seventy-five  per  centum  of  the  unimpaired 
paid-up  capital  of  the  bank:  Provided,  That — 

"  (a)  The  bank  may  issue  its  notes  in  excess  of  the  said 
seventy-five  per  centum  upon  depositing  with  the  minis- 
ter, in  respect  of  the  excess,  in  cash  or  bonds  of  the  Domin- 
ion of  Canada,  an  amount  equal  to  the  excess ;  and  the  cash 
or  bonds  so  deposited  shall,  in  the  event  of  the  suspension 
of  the  bank,  be  available  by  the  minister  for  the  redemp- 
tion of  the  notes  issued  in  excess  as  aforesaid;  and 

"  (6)  The  total  amount  of  such  notes  of  the  bank  in  cir- 
culation at  any  time  shall  not,  except  as  in  paragraph  (c) 
of  this  subsection  authorized,  exceed  its  unimpaired  paid- 
up  capital; 

.  "(c)  The  bank  may,  during  the  said  season  of  moving  of 
crops,  in  addition  to  the  circulation  of  its  notes  hereinbe- 
fore in  this  subsection  authorized,  issue  its  notes  to  an 
amount  not  exceeding  ten  per  centum  of  the  combined  un- 
impaired paid-up  capital  and  reserve  or  rest  fund  of  the 
bank  as  stated  in  the  statutory  return  made  by  the  bank 
for  the  month  immediately  preceding  that  in  which  the 
said  additional  amount  is  issued;  and  the  said  additional 
amount  shall  be  otherwise  subject  to  all  the  provisions  of 
this  section  respecting  circulation  in  addition  to  or  in  ex- 
cess of  the  unimpaired  paid-up  capital  permitted  to  other 
banks. 

"  lo.  All  notes  issued  or  re-issued  by  any  bank,  and  now 
in  circulation,  which  are  for  a  sum  less  than  five  dollars, 
or  for  a  sum  which  is  not  a  multiple  of  five  dollars,  shall  be 
called  in  and  cancelled  as  soon  as  practicable." 

2.  The  following  section  is  hereby  inserted  immediately 
after  section  147  of  the  said  act: 

"  147a.  Every  bank  which  neglects  to  make  and  send  to 
the  minister  within  the  first  fifteen  days  of  the  month  next 
thereafter  a  return  showing  the  amount  of  its  notes  in  cir- 
culation for  each  juridical  day  during  any  month  in  the 
usual  season  of  moving  the  crops — that  is  to  say,  from  and 

S.  Doc.  332.  61-2 19  285 


National     Monetary     Commission 

including  the  first  day  of  October  in  any  year  to  and  in- 
cluding the  thirty-first  day  of  January  next  ensuing — in 
which  any  amount  of  its  UQtes  in  excess  of  the  amount  of 
the  unimpaired  paid-up  capital  of  the  bank  has  been 
issued  or  is  outstanding,  and  signed  in  the  manner  and  by 
the  persons  by  this  act  required,  shall  incur  a  penalty  of 
fifty  dollars  for  each  and  every  day,  after  the  expiration  of 
such  time,  during  which  the  bank  neglects  to  make  and 
send  in  such  return." 


286 


■ 

1 

\ 

1902. 

190; 

3S 

$83,332,566 

73.458.866 

72, 795. 440 

i?97.  04^ 
79.30a 
78. 563 

44.517.681 
60,574, 144 

50.598 
62,539 

• 

I.  157.683 
5, 611, 582 

1.830 
2,884 

6. 497. 029 

3, 123,493 

115,890,499 

3,866, 

3,970 

120, 529 

279.327, 

37,199.339    34.479, 
719.778       865, 

11,314,489    II. 475 

499. 508, 534 

525,924 

o 


50   ,      1,^  094 
29    i         9.  023' 


7.556 


762, 
3. 297^ 


14.879 


I.  764, 
719, 
4.873, 


]I 

9.455, 

ll 

51.385- 

'I 

43. 704 

0 

36.925 

7 

322,879 

6 

34.  131 

2 

7.  los 

3 

1   625,388, 

lENDIX    V. 

-1908  AS  OF  DECEMBER 


1896. 

38 
533 

9.572 

$62, 513, 752 

$61.  731.354 

^26,670,  799 

$88,402,  IS3 

$782,398 

$202,098,  751 

$23, 819, 000 

H.97 

$14,030,962 

$23, 152, 413 

1 1 .  46 

6.94 

$33,095,784 

^  $25, 295, 264 

211.394,469 

36.56 

^.  5.1s 

^     $3,988,746 


1897. 


38 

sss 

9,  290 

$63,050,  148 

$62,  289,326 

$27,515,999 

$89,805,325 

$760,822 

^229,389,055 

$25,994,071 

11-33 

$19,859,822 

$38,  070,826 

16.  60 

8.66 

$37,995.  123 

$35,474,  299 

$207. 751. 420 

32.97 

7-47 

5.r8 

$3,238,285 


1898 


$64.02^ 
$63,241 
$27.95; 
$91. 19: 
$78: 
$254,06; 
$26.96( 


Page  289 


906. 


36 

I.  745 
3.  232 
269,303 
509.015 
258,007 
767, 022 
760,288 
S17.537 
018, 904 
10.  16 
$26,  533469.903 
$32.599433.636 

i       2. 01 
17.40 
$40, 25^416, 780 


$39.49 
$232,69 


$2,46 


368, 600 

518,885 

21.05 

8.  27 

4-  79 

048, 289 


35 

1,886 

3.019 

$98,648,841 

$95,995,482 

$70,  901,  232 

$166,896,714 

$2,653,  3sg 

$632,  061,  124 

$75,083,334 

11.88 

$88,  010,  341 

$7,311,334 

I. 16 

13-92 

$77.  504.398 

$71,089,897 

$584,827,285 

22.44 

8-59 

4- 90 

$3,  420, 200 


1908. 


33 

1,927 

2,  982 

$97,889,591 

$96,457,573 

$74,427,630 

$170,885,203 

$1.  432,018 

$722,  769,  156 

$93. 223,834 

12.89 

$140,964,  171 

$49.  591.037 

6.86 

19-50 

$73,058,  234 

$74,317.  795 

<t546.  079.  996 

20.  82 

8-53 

4.81 

$7,387,956 


9lished  as  supplement  to  the  Canada  Gazi 
an  additional  liability,  in  case  of  the  faili 


c 


t 

# 

Appendix  VII. 

BY-LAWS   OF   THE   CANADIAN   BANKERS'   ASSO- 
CIATION. 

I^A  corporation  created  by  special  act  of  the  Parliament  of  Canada,  63  and  64  Vict..  C. 

93  (1900). 1 

The  following  by-laws  are  hereby  enacted  as  by-laws  of 
the  Canadian  Bankers'  Association: 

I.  The  annual  general  meetings  of  the  association  shall 
be  held  on  the  second  Thursday  of  the  month  of  November 
in  each  year,  at  such  hour  and  place  as  may  be  decided 
upon  by  the  executive  council  of  the  association  from  time 
to  time.  Special  general  meetings  of  the  association  may 
be  called  at  any  time  by  the  said  executive  council,  and 
shall  be  called  by  the  president  or  secretary-treasurer  on 
the  written  requisition  of  at  least  5  members  of  the  asso- 
ciation. 

The  requisition  (if  any)  for  and  the  notice  calling  any 
special  general  meeting  shall  specify  therein  the  general 
nature  of  the  business  to  be  considered  or  transacted  there- 
at. Special  general  meetings  shall  be  held  at  such  time, 
hour,  and  place  as  shall  be  mentioned  in  the  notice  calling 
the  same..  Thirty  days'  notice  shall  be  given  of  every  gen- 
eral meeting  of  the  association,  whether  annual  or  special. 
At  any  annual  or  special  general  meeting  of  the  association 
7  persons,  duly  representing  members  of  the  association, 
shall  form  a  quorum. 

At  any  annual  general  meeting  of  the  association  any 
business  may  be  transacted  thereat. 


291 


National     Monetary     Commission 

At  any  special  general  meeting  of  the  association  only 
such  business  shall  be  transacted  as  is  mentioned  in  the 
notice  calling  such  special  general  meeting. 

2.  At  every  annual  general  meeting  the  members  of  the 
association,  through  their  representatives  or  proxies,  shall 
elect  from  among  the  chief  executive  officers  (as  defined 
by  charter  of  incorporation)  of  members  of  the  association, 
a  president,  4  vice-presidents,  and  14  councilors,  all  of  whom 
shall  hold  office  until  the  next  annual  general  meeting,  or 
until  their  successors  are  appointed,  and  may  also  elect 
honorary  presidents  of  the  association,  not  exceeding  3  in 
number,  who  shall  also  hold  office  until  the  next  annual 
general  meeting  after  their  election. 

3.  The  executive  council  of  the  association  shall  consist 
of  the  president  and  vice-presidents,  and  the  said  14  coun- 
cilors aforesaid,  and  5  shall  form  a  quorum  for  the  trans- 
action of  business. 

The  honorary  presidents  shall  also  have  seats  at  the  ex- 
ecutive council,  but  shall  have  no  vote  thereat. 

4.  At  all  meetings  of  the  association  each  member  shall 
have  one  vote  upon  each  matter  submitted  for  vote.  The 
chairman  shall,  in  addition  to  any  vote  he  may  have  as 
chief  executive  officer  or  proxy,  have  a  casting  vote  in  case 
of  a  tie. 

Each  associate  shall  also  have  one  vote  on  all  subjects 
except  the  following,  on  which  members  only  shall  be  per- 
mitted to  vote:  I,  election  of  officers;  2,  action  relating 
to  proposed  legislation;  3,  by-laws;  4,  adding  to  or 
amending  the  charter;  5,  all  other  subjects  on  which  gen- 
eral action  by  the  banks  is  contemplated. 

5.  The  executive  council  may  meet  together  for  the 
dispatch  of  business,  adjourn  and  otherwise  regulate  its 
meetings  as  it  by  resolution  or  otherwise  may  determine 
from  time  to  time. 

The  secretary-treasurer  shall  at  any  time  at  the  request 
of  the  president  or  any  vice-president  or  any  other  member 

292 


History    of    Banking     in     Canada 

of  the  executive  council  convene  a  meeting  of  the  council: 
Provided,  however,  That  no  business  shall  be  transacted  at 
a  meeting  called  at  the  request  of  a  member  unless  the 
notice  calling  the  meeting  specifies  in  some  general  terms 
that  such  business  will  be  transacted  thereat,  but  this  pro- 
vision shall  not  apply  to  any  meeting  called  at  the  request 
of  the  president  or  any  vice-president. 

On  all  questions  arising  at  any  meeting  of  the  executive 
council  each  member  shall  have  one  vote  in  addition  to 
any  vote  he  may  have  as  proxy,  and  the  chairman  shall 
have  in  addition  a  casting  vote. 

6.  At  all  meetings  of  the  association  and  of  the  execu- 
tive council  the  president,  when  present,  shall  be  chair- 
man, and  in  his  absence  one  of  the  vice-presidents  chosen 
by  the  members  of  the  council  then  present;  and  in  the 
absence  of  the  president  and  vice-presidents  the  mem- 
bers of  the  council  then  present  may  choose  some  one  of 
their  number  to  be  chairman  of  such  meeting. 

7.  Any  member  not  represented  at  a  meeting  of  the 
association  by  one  of  the  officers  named  in  section  8  of 
the  charter  of  incorporation  may  vote  by  proxy,  pro- 
vided such  proxy  is  held  by  an  associate  who  is  an  assist- 
ant general  manager,  or  assistant  cashier,  inspector  or 
manager  of  any  bank,  or  any  branch  thereof. 

Any  member  of  the  executive  council,  when  not  pres- 
ent at  any  meeting  thereof,  may  be  represented  thereat 
by  proxy,  provided  such  proxy  is  held  by  such  an  associ- 
ate as  is  before  mentioned  in  this  by-law.  Proxies  shall 
be  in  writing. 

8.  The  executive  council  may  from  time  to  time  repeal, 
amend,  or  add  to  any  of  the  by-laws  of  the  association, 
except  those  relating  to  dues,  to  the  clearing  house,  to  the 
curator  and  his  duties,  and  to  the  circulation;  but  every 
such  repeal,  amendment,  or  addition  shall  only  have  force 
until  the  next  annual  general  meeting  of  the  association, 


293 


National     Monetary     Commission 

and  if  not  confirmed  thereat  shall  thereupon  cease  to  have 
force. 

9.  The  said  executive  council  shall  have  power  from 
time  to  time  to  appoint  a  secretary-treasurer,  who  shall 
be  an  officer  or  ex-officer  of  a  bank,  and  to  remove  him 
from  office,  and  to  fix  his  remuneration  and  the  terms  of 
his  engagement. 

The  executive  council  shall  also  have  power  from  time 
to  time  to  appoint  a  solicitor  or  solicitors  and  to  fix  their 
remuneration  for  either  general  or  special  services,  and 
also  to  engage  counsel  where  such  services  may  be  needed. 

10.  Existing  subsections  of  the  voluntary  association 
are  hereby  continued  as,  and  constituted,  subsections  of 
the  association  as  incorporated.  Subsections  hereby  or 
hereinafter  constituted  may  pass  by-laws  for  their  guid- 
ance, subject  always  to  the  provisions  of  the  charter  of 
incorporation  and  the  by-laws  of  the  association. 

The  bankers'  section  of  the  boards  of  trade  in  the  cities 
of  Montreal  and  Toronto,  respectively,  shall  be  empowered 
respectively  to  represent  the  association  in  all  matters 
connected  with  legislation  in  the  legislatures  of  Quebec 
and  Ontario,  respectively — it  being  understood  that  the 
respective  sections  will,  as  fully  as  possible,  keep  the  pres- 
ident and  the  executive  council  of  the  association  advised 
on  all  points  that  may  arise  in  connection  with  the  mat- 
ters referred  to,  and  will  not  make  representations  in  the 
name  of  the  association  contrary  to  the  views  of  the  exec- 
utive council  after  such  views  have  been  expressed. 

1 1 .  An  editing  committee  appointed  by  the  association 
shall  supervise  the  publication  of  the  "Journal  of  the  Ca- 
nadian Bankers'  Association,"  and  the  executive  council 
shall  appoint  such  other  officers  as  it  may  deem  necessary ; 
and  shall  also  make  such  provisions  and  arrangements 
from  time  to  time  as  it  deems  proper  for  lectures,  discus- 
sions, competitive  papers,  and  examinations. 


294 


History     of    Banking     in     Canada 

12.  The  dues  or  subscriptions  payable  to  the  associa- 
tion by  the  members  thereof  shall  be  as  follows: 

I'Or  banks  with  a  paid-up  capital  stock  of  under  $1,000,000 $100 

I'or  banks  with  a  paid-up  capital  stock  of  $1,000,000  and  under 

$2,000,000 200 

For  banks  with   a  paid-up  capital   stock  of  $2,000,000  and   under 

$3,000,000 300 

For  banks  with  a  paid-up  capital  stock  of  $3,000,000  and  over 400 

The  dues  or  subscriptions  payable  to  the  association  by 
the  associates  thereof  shall  be  $1  annually.  Members 
and  associates'  subscriptions  shall  be  payable  on  or  be- 
fore the  ist  February  and  ist  Jul}^  respectively,  in  each 
year. 

CIRCULATION. 

13.  (a)  A  monthly  return  shall  be  made  to  the  presi- 
dent of  the  Canadian  Bankers'  Association  by  all  banks 
doing  business  in  Canada,  whether  members  of  the  Cana- 
dian Bankers'  Association  or  not,  in  the  form  hereinafter 
set  forth;  said  return  shall  be  made  up  and  sent  in  within 
the  first  fifteen  days  of  each  month,  and  shall  exhibit  the 
condition  of  the  bank's  note  circulation  on  the  last  juridical 
day  of  the  month  next  preceding ;  and  everv  such  monthly 
return  shall  be  signed  by  the  chief  accountant  or  acting 
chief  accountant  and  by  the  president  or  vice-president,  or 
by  any  director  of  the  bank,  and  by  the  general  manager, 
cashier,  or  other  chief  executive  officer  of  the  bank  at  its 
chief  place  of  business.  Every  such  monthly  return  which 
shows  therein  notes  destroyed  during  such  month  shall  be 
accompanied  by  a  certificate  or  certificates  in  the  form 
hereinafter  set  forth,  covering  all  the  notes  mentioned  as 
destroyed  in  such  return,  signed  by  at  least  three  of  the 
directors  of  the  bank,  and  by  the  chief  executive  officer  or 
some  officer  of  the  bank  acting  for  him,  stating  that  the 
notes  mentioned  in  such  certificate  or  certificates  have 

•been  destroyed  in  the  presence  of  and  under  the  super- 
vision of  the  persons  respectively  signing  such  certificate 
or  certificates,  respectively. 

295 


National     Monetary     Commission 

Form  of  Monthly  Return  of  Circulation  Above  Mentioned. 
Circulation  statement  of  the  (here  state  name  of  batik)  for  the  month 

of ,    790_- 

Credit   balance  of    bank-note  accounts  on  last  day   of   preceding 

month  (inclusive  of  unsigned  notes) $ 

Add  notes  received  from  printers  during  month,  viz ; 

From $ 

From $ 


Less  notes  destroyed  during  month  (as  per  certificate  herewith) 


Balance  of  bank-note  accounts  on  last  day  of  month. 
Less  notes  on  hand,  viz: 

Signed $ 

Unsigned $ 


Notes  in  circulation  on  last  day  of  month. 


Chief  Accountant. 

We  declare  that  the  foregoing  return,  to  the  best  of  our  knowledge  and 
belief,  is  correct,  and  shows  truly  and  clearly  the  state  and  position  of  the 
note  circulation  of  said  bank  during  and  on  the  last  day  of  the  period 
covered  by  such  return. 

this day  of ,  19-- 


P  resident. 
General  Manager. 


Form  of  Certificate  of  Destruction  of  Notes  Above  Mentioned. 

Certificate  of  destruction  of  notes  of  the  {here  mention  name  of  bank)  accom- 
panying   monthly   circulation   statement   for    month   of A.    D. 

190-- 

We,  the  undersigned,  hereby  certify  that  we  have  examined  bank  notes 

of  this  bank  amounting  to  $ consisting  of  the  following,  viz:  (here 

set  out  the  denominations)  and  have  burned  and  destroyed  the  same,  and 
that  the  said  notes  so  burned  and  destroyed  by  us  are  not  included  in  any 
other  certificate  of  destruction  of  notes  signed  by  us  or  any  of  us,  or  to  the 


History     of    Banking     in     Canada 

best  of  our  knowledge  and  belief  by  any  other  person,   to  accompany  the 
present  or  any  monthly  circulation  statement  made  or  to  be  made  to  the 
president  of  the  Canadian  Bankers'  Association. 
this day  of 19.  _ 


Directors  of  Said  Bank. 
General  Manager. 

(b)  For  all  purposes  of  this  by-law,  the  chief  place  of 
business  of  the  Bank  of  British  North  America  shall  be  the 
•chief  office  of  the  said  bank  at  the  city  of  Montreal,  in  the 
Province  of  Quebec. 

And  in  the  case  of  the  said  Bank  of  British  North 
America  the  said  monthly  circulation  return  shall  be 
signed  by  the  general  manager's  clerk,  or  acting  general 
manager's  clerk,  and  by  the  general  manager  or  the  acting 
general  manager  of  the  said  bank ;  and  the  said  certificate 
of  destruction  of  notes  shall  be  signed  by  the  general 
manager  or  acting  general  manager,  the  inspector  or 
assistant  inspector,  and  the  local  manager  of  the  Montreal 
branch,  or  the  acting  local  manager  of  the  Montreal 
branch  of  the  said  bank,  instead  of  by  the  persons  respec- 
tively hereinbefore  directed  to  sign  the  said  returns 
respectively. 

(c)  Every  bank  which  neglects  to  make  up  and  send  in 
as  aforesaid  any  monthly  return  required  by  this  by-law 
within  the  time  by  this  by-law  limited,  shall  incur  a  pen- 
alty of  $50  for  each  and  every  day  after  the  expiration  of 
such  time  during  which  the  bank  neglects  so  to  make  up 
and  send  in  such  return. 

(d)  The  executive  council  of  the  association  shall  have 
power,  by  resolution,  at  any  time,  to  direct  that  an  inspec- 
tion shall  be  made  of  the  circulation  accounts  of  any  bank 
by  an  officer  or  officers  to  be  named  in  such  resolution,  and 
such  inspection  shall  be  made  accordingly. 


297 


National     Monetary     C o  m  m  is s  io  n 

{e)  Some  person  or  persons  appointed  from  time  to  time 
by  the  executive  council  of  the  association  shall  during  the 
year  1901  and  during  every  year  thereafter  make  inspec- 
tion of  the  circulation  accounts  of  every  bank  doing  busi- 
ness in  Canada,  whether  members  of  the  association  or  not, 
and  shall  report  thereon  to  the  council,  and  shall  there- 
after inspect  the  circulation  accounts  of  each  bank  during 
each  year;  and  upon  every  such  inspection  all  and  every 
the  officers  of  the  bank  whose  circulation  account  is  so 
inspected  shall  give  and  afford  to  the  officer  or  officers  mak- 
ing the  inspection  all  such  information  and  assistance  as 
he  or  they  may  require  to  enable  him  or  them  fully  to 
inspect  said  circulation  account,  and  to  report  to  the  coun- 
cil upon  the  same  and  upon  the  means  adopted  for  the 
destruction  of  notes. 

(/)  The  amount  of  all  penalties  imposed  upon  a  bank  for 
any  violation  of  this  by-law  shall  be  recoverable  and  en- 
forceable with  costs,  at  the  suit  of  the  Canadian  Bankers' 
Association,  and  such  penalties  shall  belong  to  the  Canadian 
Bankers'  Association  for  the  uses  of  the  association. 

{g)  The  president  of  the  Canadian  Bankers'  Association 
shall  each  month  have  printed  and  forwarded  to  the  chief 
executive  officer  of  every  bank  of  Canada  subject  to  the 
bank  act,  whether  a  member  of  the  association  or  not,  a 
statement  of  the  circulation  returns  of  all  the  banks  in 
Canada  for  the  last  preceding  month,  as  received  by  him. 

{h)  In  this  by-law  it  is  declared  for  greater  certainty  that 
the  Canadian  Bankers'  Association  herein  mentioned  and 
referred  to  is  the  association  incorporated  by  special  act  of 
Parliament  of  Canada,  63  and  64  Vict.,  C.  93. 

CURATOR. 

14.  Whenever  any  bank  suspends  payment,  a  curator,  as 
mentioned  in  section  24  of  the  bank  act  amendment  act, 
1900,  shall  be  appointed  to  supervise  the  affairs  of  such 

298 


History    of    Banking     in     Canada 

bank.  Such  appointment  shall  be  made  in  writing  by  the 
president  of  the  association  or  by  the  person  who,  during  a 
vacancy  in  the  office  of,  or  in  the  absence  of,  the  president, 
may  be  acting  as  president  of  the  association. 

If  a  curator  so  appointed  dies  or  resigns  another  curator 
may  be  appointed  in  his  stead  in  the  manner  aforesaid. 

The  executive  council  may,  by  resolution,  at  any  time 
remove  a  curator  from  office  and  appoint  another  person 
curator  in  his  stead. 

A  curator  so  appointed  shall  have  all  the  powers  and  sub- 
ject to  the  provisions  of  by-law  No.  15,  shall  perform  all 
the  duties  imposed  upon  the  curator  by  the  said  bank  act 
amendment  act;  he  shall  also  furnish  all  such  returns  and 
reports,  and  give  all  such  information  touching  the  affairs 
of  the  suspended  bank  as  the  president  of  the  association 
or  the  executive  council  may  require  of  him  from  time  to 
time. 

The  remuneration  of  the  curator  for  his  services  and  his 
expenses  and  disbursements  in  connection  with  the  dis- 
charge of  his  duties  shall  be  fixed  and  determined  from 
time  to  time  by  the  executive  council. 

15.  Whenever  a  bank  suspends  payment  and  a  curator 
is  accordingly  appointed,  the  president  shall  also  appoint  a 
local  advisory  board  consisting  of  three  members,  selected 
generally  as  far  as  possible  from  among  the  general  man- 
agers, assistant  general  managers,  cashiers,  inspectors,  or 
chief  accountants,  or  branch  managers  of  any  bank  at  the 
place  where  the  head  office  of  such  suspended  bank  is  situ- 
ated, and  the  curator  shall  advise  from  time  to  time  with 
such  advisory  board,  and  it  shall  be  his  duty,  before  taking 
any  important  step  in  connection  with  his  duties  as  curator, 
to  obtain  the  approval  of  such  advisory  board  thereto. 
With  the  sanction  of  such  advisory  board,  he  may  employ 
such  assistants  as  he  may  require  for  the  full  performance  of 
his  duties  as  curator. 


299 


National     Monetary     Commission 

CLEARING    HOUSES. 

1 6.  The  rules  and  regulations  contained  in  this  by-law 
are  made  in  pursuance  of  the  powers  contained  in  the  act 
to  incorporate  the  Canadian  Bankers'  Association  (63  and 
64  Vict.,  C.  93,  1900),  and  shall  be  adopted  by  and  shall 
be  the  rules  and  regulations  governing  all  clearing  houses 
now  existing  and  established  or  that  may  be  hereafter 
established. 

Rules  and  regulations  respecting  clearing  houses  made  in 
pursuance  of  the  powers  contained  in  the  act  to  incorpo- 
rate the  Canadian  Bankers'  Association. 

1.  The  chartered  banks  doing  business  in  any  city  or 
town,  or  such  of  them  as  may  desire  to  do  so,  may  form 
themselves  into  a  clearing  house.  Chartered  banks  there- 
after establishing  offices  in  such  city  or  town  may  be  ad- 
mitted to  the  clearing  house  by  a  vote  of  the  members. 

2.  The  clearing  house  is  established  for  the  purpose  of 
facilitating  daily  exchanges  and  settlements  between  banks. 
It  shall  not  either  dir.ectly  or  indirectly  be  used  as  a  means 
of  obtaining  payment  of  any  item,  charge,  or  claim  dis- 
puted or  objected  to.  It  is  expressly  agreed  that  any 
bank  receiving  exchanges  through  the  clearing  house  shall 
have  the  same  rights  to  return  any  item  and  to  refuse  to 
credit  any  sum  which  it  would  have  had  were  the  exchanges 
made  directly  between  the  banks  concerned  instead  of 
through  the  clearing  house;  and  nothing  in  these  or  any 
future  rules,  and  nothing  done,  or  omitted  to  be  done 
thereunder,  and  no  failure  to  comply  therewith  shall  de- 
prive a  bank  of  any  rights  it  might  have  possessed  had 
such  rules  not  been  made,  to  return  any  item  or  refuse  to 
credit  any  sum;  and  payment  through  the  clearing  house 
of  any  item,  charge,  or  claim  shall  not  deprive  a  bank  of 
any  right  to  recover  back  the  amount  so  paid. 


30} 


History     of    Banking     in     Canada 

3.  The  annual  meeting  of  the  members  shall  be  held  on 
such  day  in  each  year  and  at  such  time  and  place  as  the 
members  may  fix  by  by-law.  Special  meetings  may  be 
called  by  the  chairman  or  vice-chairman  whenever  it  may 
be  deemed  necessary,  and  the  chairman  shall  call  a  special 
meeting  whenever  requested  to  do  so  in  writing  by  three 
or  more  members 

4.  At  any  meeting  each  member  may  be  represented  by 
one  or  more  of  its  officers,  but  each  bank  shall  have  one 
vote  only. 

5.  At  every  annual  meeting  there  shall  be  elected  by 
ballot  a  board  of  management,  who  shall  hold  office  until 
the  next  annual  meeting,  and  thereafter  until  their  suc- 
cessors are  appointed.  They  shall  have  the  general  over- 
sight and  management  of  the  clearing  house.  They  shall 
also  deal  with  the  expenses  of  the  clearing  house  and  the 
assessments  made  therefor.  In  the  absence  of  any  mem- 
ber of  the  board  of  management  he  may  be  represented 
by  another  officer  of  the  bank  of  which  he  is  an  officer. 

6.  The  board  of  management  shall,  at  their  first  meet- 
ing after  their  appointment,  elect,  out  of  their  own  number, 
a  chairman,  a  vice-chairman,  and  a  secretary-treasurer, 
who  shall  perform  the  duties  customarily  appertaining  to 
these  offices. 

The  officers  so  selected  shall  be,  respectively,  the  chair- 
man, vice-chairman,  and  secretary-treasurer  of  the  clearing 
house. 

Should  the  bank  of  which  the  chairman  is  an  officer  be 
interested  in  any  matter  his  powers  and  duties  shall,  with 
respect  to  such  matter,  be  exercised  by  the  vice-chairman, 
who  shall  also  exercise  the  chairman's  duties  and  powers 
in  his  absence. 

7.  Meetings  of  the  board  may  be  held  at  such  times  as 
the  members  of  the  same  may  determine.  A  special  meet- 
ing shall  be  called  by  the  secretary-treasurer  on  the  written 
requisition  of  any  member  of  the  clearing  house  for  the 

301  , 


National     M  o  n  et  a  r  y     Commission 

consideration  of  any  matter  submitted  by  it,  of  which 
meeting  twenty-four  hours'  notice  shall  be  given,  but  if 
such  meeting  is  for  action  under  rules  15  or  1 6  it  shall  be 
called  immediately. 

8.  The  expenses  of  the  clearing  house  shall  be  met  by 
an  equal  assessment  upon  the  members,  to  be  made  by  the 
board  of  management. 

9.  Any  bank  may  withdraw  from  the  clearing  house  by 
giving  notice,  in  writing,  to  the  chairman  or  secretary- 
treasurer  between  the  hours  of  i  and  3  o'clock  p.  m.  and 
paying  its  due  proportion  of  expenses  and  obligations  then 
due.  Said  retirement  to  take  effect  from  the  close  of  busi- 
ness of  the  day  on  which  such  notice  is  given.  The  other 
banks  shall  be  promptly  notified  of  such  withdrawal. 

10.  The  board  of  management  shall  arrange  with  a  bank 
to  act  as  clearing  bank  for  the  receipt  and  disbursement 
of  balances  due  by  and  to  the  various  banks,  but  such 
bank  shall  be  responsible  only  for  the  moneys  and  funds 
actually  received  by  it  from  the  debtor  banks,  and  for  the 
distribution  of  the  same  amongst  the  creditor  banks,  on 
the  presentation  of  the  clearing-house  certificates  properly 
discharged.  The  clearing  bank  shall  give  receipts  for  bal- 
ances received  from  the  debtor  banks.  The  board  of 
management  shall  also  arrange  for  an  officer  to  act  as 
manager  of  the  clearing  house  from  time  to  time,  but  not 
necessarily  the  same  officer  each  day. 

1 1 .  The  hours  for  making  the  exchanges  at  the  clearing 
house,  for  payment  of  the  debit  balances  to  the  clearing 
bank,  and  for  payment  out  of  the  balances  due  the  cred- 
itor banks,  shall  be  fixed  by  by-law  under  clause  17.  On 
completion  of  the  exchanges,  the  balances  due  to  or  by 
each  bank  shall  be  settled  and  declared  by  the  clearing- 
house manager,  and  if  the  clearing  statements  are  read- 
justed under  the  provisions  of  these  rules,  the  balances 
must  then  be  similarly  declared  settled,  and  the  balances 
due  by  debtor  banks  must  be  paid  into  the  clearing  bank 

302 


History    of    Banking     in     Canada 

at  or  during  the  hours  fixed  by  by-law  as  aforesaid,  pro- 
vided that  no  credit  balance,  or  portion  thereof,  shall  be 
paid  until  all  debit  balances  have  been  received  by  the 
clearing  bank.  At  clearing  houses  where  balances  are 
payable  in  money  they  shall  be  paid  in  legal  tender  notes 
of  large  denominations. 

At  clearing  houses  where  balances  are  payable  by  draft, 
should  any  settlement  draft  given  to  the  clearing  bank 
not  be  paid  on  presentation,  the  clearing  bank  shall  at 
once  notify,  in  writing,  all  the  other  banks  of  such  default  ; 
and  the  amount  of  the  unpaid  drafts  shall  be  repaid  to 
the  clearing  bank  by  the  banks  whose  clearances  were 
against  the  defaulting  bank  on  the  day  the  unpaid  draft 
was  drawn,  in  proportion  to  such  balances.  The  clearing 
bank  shall  collect  the  unpaid  draft,  and  pay  the  same  to 
the  other  banks  in  the  above  proportion.  It  is  under- 
stood that  the  clearing  bank  is  to  be  the  agent  of  the  asso- 
ciated banks,  and  to  be  liable  only  for  moneys  actually 
received  by  it. 

Should  any  bank  make  default  in  paying  to  the  clearing 
bank  its  debit  balance,  within  the  time  fixed  by  this  rule, 
such  debit  balance  and  interest  thereon  shall  then  be  paid 
by  the  bank  so  in  default  to  the  chairman  of  the  clearing 
house  for  the  time  being,  and  such  chairman  and  his  suc- 
cessor in  office  from  time  to  time  shall  be  a  creditor  of 
and  entitled  to  recover  the  said  debit  balance,  and  interest 
thereon,  from  the  defaulting  bank.  Such  balances,  when 
received  by  the  said  chairman  or  his  successor  in  office, 
shall  be  paid  by  him  to  the  clearing  bank  for  the  benefit 
of  the  banks  entitled  thereto. 

12.  In  order  that  the  clearing  statements  may  not  be 
unnecessarily  interfered  with,  it  is  agreed  that  a  bank  ob- 
jecting to  any  item  delivered  to  it  through  the  clearing 
house,  or  to  any  charge  against  it  in  the  exchanges  of  the 
day,  shall,  before  notifying  the  clearing-house  manager  of 
the  objection,  apply  to  the  bank  interested  for  payment 

303 


National     Monetary     Commission 

of  the  amount  of  the  item  or  charge  objected  to,  and 
such  amount  shaU  thereupon  be  immediately  paid  to  the 
objecting  bank.  Should  such  payment  not  be  made  the 
objecting  bank  may  notify  the  clearing-house  manager  of 
such  objection  and  nonpayment,  and  he  shall  thereupon 
deduct  the  said  amount  from  the  settling  sheets  of  the 
banks  concerned,  and  readjust  the  clearing  statements 
and  declare  the  correct  balances  in  conformity  with  the 
changes  so  made,  provided  that  such  notice  shall  be  given 
at  least  half  an  hour  before  the  earliest  hour  fixed  by  by- 
law, as  provided  in  clause  1 1 ,  for  payment  of  the  balances 
due  to  the  creditor  banks.  But  notwithstanding  that  the 
objecting  bank  may  not  have  so  notified  the  clearing-house 
manager,  it  shall  be  the  duty  under  these  rules  of  the 
bank  interested  to  make  such  payment  on  demand  there- 
for being  made  at  any  time  up  to  3  o'clock:  Provided,  how- 
ever, That  if  the  objection  is  based  on  the  absence  from 
the  deposit  of  any  parcel  or  of  any  check  or  other  item 
entered  on  the  deposit  slip,  notice  of  such  absence  shall 
have  been  given  to  the  bank  interested  before  12  o'clock 
noon,  the  whole,  however,  subject  to  the  provisions  of 
rule  No.  2. 

13.  All  bank  notes,  checks,  drafts,  bills,  and  other  items 
(hereafter  referred  to  as  "items")  delivered  through  the 
clearing  house  to  a  bank  in  the  exchanges  of  the  day, 
shall  be  received  by  such  bank  as  a  trustee  only,  and  not 
as  its  own  property,  to  be  held  upon  the  following  trust, 
namely,  upon  payment  by  such  bank  at  the  proper  hour 
to  the  clearing  bank  of  the  balance  (if  any)  against  it,  to 
retain  such  items  freed  from  said  trust;  and  in  default  of 
payment  of  such  balance,  to  return  immediately  and  be- 
fore 12.30  p.  m.,  the  said  items  unmarked  and  unmuti- 
lated  through  the  clearing  house  to  the  respective  banks, 
and  the  fact  that  any  item  can  not  be  so  returned  shall 
not  relieve  the  bank  from  the  obligation  to  return  the  re- 


304 


History     of    Banking     in     Canada 

maining  items,  including  the  amount  of  the  bank's  own 
notes  so  deUvered  in  trust. 

Upon  such  default  and  return  of  said  items  each  of  the 
other  banks  shall  immediately  return  all  items  which  may 
have  been  received  from  the  bank  so  in  default,  or  pay 
the  amount  thereof  to  the  defaulting  bank  through  the 
clearing  house.  The  items  returned  by  the  bank  in  default 
shall  remain  the  property  of  the  respective  banks  from 
which  they  were  received,  and  the  clearing-house  manager 
shall  adjust  the  settlement  of  balances  anew. 

A  bank  receiving  through  the  clearing  house  such  items 
as  aforesaid  shall  be  responsible  for  the  proper  carrying 
out  of  the  trust  upon  which  the  same  are  received  as  afore- 
said, and  shall  make  good  to  the  other  banks,  respectively, 
all  loss  and  damage  which  may  be  suffered  by  the  default 
in  carrying  out  such  trust. 

14.  In  the  event  of  any  bank  receiving  exchanges 
through  the  clearing  house  making  default  in  payment  of 
its  debit  balance  (if  any)  then,  in  lieu  of  its  returning  the 
items  received  by  it  as  provided  by  rule  13,  the  board  of 
management  may  require  the  banks  to  which  the  default- 
ing bank,  or  an  account  being  taken  of  the  exchanges  of 
the  day  between  it  and  the  other  banks,  would  be  a  debtor, 
in  proportion  to  the  amounts  which,  on  such  accounting, 
would  be  respectively  due  to  them,  to  furnish  the  chair- 
man of  the  clearing  house,  for  the  time  being,  with  the 
amount  of  the  balance  due  by  the  defaulting  bank,  and 
such  amount  shall  be  furnished  accordingly,  and  shall  be 
paid  by  the  chairman  to  the  clearing  bank,  which  shall 
then  pay  over  to  the  creditor  banks  the  balances  due  to 
them  in  accordance  with  rule  11.  The  said  funds  for 
the  chairman  shall  be  furnished  by  being  deposited  in  the 
clearing  bank  for  the  purpose  aforesaid.  The  defaulting 
bank  shall  repay  to  the  chairman  for  the  time  being,  or 
to  his  successor  in  office,  the  amount  of  such  debit  balance 

S.  Doc.  332,  61-2 20  305 


National     M on  et ar y     Commission 

and  interest  thereon,  and  the  said  chairman,  and  his  suc- 
cessor in  office,  shall  be  entitled  to  recover  the  same  from 
the  defaulting  bank.  Any  moneys  so  recovered  shall  be 
held  in  trust  for  and  deposited  in  the  clearing  bank  for 
the  benefit  of  the  banks  entitled  thereto. 

15.  If  a  bank  neglects  or  refuses  to  pay  its  debit  bal- 
ance to  the  clearing  bank,  and  if  such  default  be  made  not 
because  of  inability  to  pay,  the  board  of  management  may 
direct  that  the  exchanges  for  the  day  between  the  default- 
ing bank  and  each  of  the  other  banks  be  eliminated  from 
the  clearing-house  statements  and  that  the  settlements 
upon  such  exchanges  be  made  directly  between  the  banks 
interested,  and  not  through  the  clearing  house.  Upon 
such  direction  being  given,  the  clearing-house  manager 
shall  comply  therewith  and  adjust  the  settlement  of  bal- 
ances anew,  and  the  settlements  of  the  exchanges  so 
eliminated  shall  thereupon  be  made  directly  between  the 
banks  interested. 

16.  Should  any  case  arise  to  which,  in  the  opinion  of  the 
board  of  management,  the  foregoing  rules  are  inapplicable, 
or  in  which  their  operation  would  be  inequitable,  the  board 
shall  have  power  at  any  time  to  suspend  the  clearings  and 
settlements  of  the  day;  but  immediately  upon  such  sus- 
pension the  board  shall  call  a  meeting  of  the  members  of 
the  clearing  house  to  take  such  measures  as  may  be 
necessary. 

17.  Every  clearing  house  now  existing  or  that  may 
hereafter  be  established  may  enact  by-laws,  rules,  and 
regulations  for  the  government  of  its  members  not  incon- 
sistent with  these  rules,  and  may  fix  therein,  among  other 
things : 

1 .  The  name  of  the  clearing  house. 

2.  The  number  of  members  of  the  board  of  manage- 
ment and  the  quorum  thereof. 

3.  The  date,  time,  and  place  for  the  annual  meeting. 


306 


History     of    Banking     in     Canada 

4.  The  mode  of  providing  for  the  expenses  of  the  clear- 
ing house. 

5.  The  hours  for  making  exchanges  and  for  payment  of 
the  balances  to  or  by  the  cleariftg  bank. 

6.  The  mode  or  medium  in  which  balances  are  to  be 
paid. 

Any  by-law,  rule,  or  regulation  passed  or  adopted  under 
this  clause  may  be  amended  at  any  meeting  of  the  mem- 
bers, provided  that  not  less  than  two  weeks'  notice  of 
such  meeting  and  of  the  proposed  amendments  has  been 
given. 

NOTICES. 

17.  Any  notice  of  meeting,  or  any  other  notice  author- 
ized or  required  to  be  given  to  any  member  of  the  asso- 
ciation, shall  be  deemed  sufficiently  given  if  sent  through 
the  post-office  in  a  prepaid  letter  or  by  hand  to  the  head 
office  of  any  such  member,  addressed  to  such  member  or 
to  the  general  manager  or  cashier  of  such  member,  and 
in  the  case  of  the  Bank  of  British  North  America,  through 
its  chief  office  in  the  city  of  Montreal,  addressed  to  it  or 
to  its  general  manager;  and  any  notice  sent  by  post  shall 
be  deemed  to  have  been  given  on  the  day  following  that 
on  which  the  same  was  mailed,  and  in  proving  the  giving 
of  such  notice  it  shall  be  sufficient  to  prove  that  the  letter 
was  properly  prepaid,  addressed,  and  mailed. 

Any  notice  authorized  or  required  to  be  given  to  any 
member  of  the  executive  council  may  be  sent  by  the 
secretary-treasurer  by  hand,  or  through  the  post-office, 
or  by  telegraph,  or  in  any  other  manner  which  the  said 
council  may  prescribe. 

Any  notice  authorized  or  required  to  be  given  to  any 
associate  as  such  shall  be  sufficiently  given  if  given  by  ad- 
vertisement once  in  a  newspaper  in  the  cities  of  Montreal 
and  Toronto. 


■?o7 


National     Monetary     Commission 

1 8.  In  the  foregoing  by-laws,  unless  there  be  something 
in  the  subject  or  context  inconsistent  therewith,  the 
words : 

"The  association"  shall  mean  "The  Canadian  Bankers' 
Association,"  incorporated  by  special  act  of  the  Parlia- 
ment of  Canada  (63  and  64  Vict.,  C.  93). 

"The  executive  council,"  or  "The  council,"  shall  mean 
"The  executive  council  of  the  Canadian  Bankers'  Asso- 
ciation." 


308 


CANADIAN 


$1, 089, 976 
809, 078 

45.97° 
88,532 

188,370 
42,  465 
28,680 
54,  223 
97. 480 
70, 707 


23.097 


2,  539,864 


TABLE   SHOWING    BY   YEARS   THH   CLEARINGS   IN   THE   CLEARING    HOUSES   OF    DIVERS   CANADIAN    CITIES,    1890-190S 


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::::  '    ""''   "■"    •::::    ''^    ':"^:   z:i    ':^   B]  B£  B   B\  B   B    E^  B   ,S    .^;i::   B 

'"■' '■  ■■'    """  -^^^^^-i  •• ..-■■.i^^^i  .^.-...•.  .........,^:r^r^7;;i^,  ,.„... ,  .........i  .Z]  .Z] ;  ...,Z\ .,  ll 


Page  310 


1  I  Ontario 

2  1  Quebec . 

3  New  Brunswick 

4  Nova  Scotia  .  . 

5  Prince  Edward  Island 

6  1  British  Columbia 

7  I  Manitoba 

8  I  Northwest  Territories 

9  Yukon 

to        All  Canada 

S.  Doc.  332.  61-2. 


491 
183 
47 
99 

II 
SO 
87 
78 
3 


549 

196 

49 

lOI 

10 
5S 
9S 
87 
3 


I90S- 

701 

246 

SO 

100 

II 

66 

127 

ISO 

3 


1906. 

84s 

270 

S4 

106 

14 

78 

166 

209 

3 


1908. 


929 

918 

I 

297 

311 

2 

5S 

S8 

i 

104 

104 

A 

14 

16 

5 

90 

103 

6 

163 

162 

7 

231 

252 

8 

3 

3 

9 

NUMBER  or  BRANCHES  OF  CANADIAN  BANKS  ON  DECEMBER  31,  1889-190S. 


1889. 

.890. 

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Bril'sb  Columbia                                              ' 

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THE  UNIVERSITY  LIBRARY 
This  book  is  DUE  on  the  last  date  stamped  below 

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iAN2  2t99T 


Form  L-9-2(l)/(-8.'3-; 


2704     Breckenridge 
,B74h      The  history 

of  banking 
in  Canada. 


L  006  013  652  0 


JUN^6  1951. 


HG 
2704 
B74h 


UC  SOUTHERN  REGIONAL  LIBRARY  FACI 


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